Bunnings set for hardware challenge

Speaking at a business lunch yesterday, Mr Goyder said Bunnings had a relatively small market share, with further growth opportunities.

"The hardware market, the home improvement market, is we think a very big market and we believe our current market share is under 20 per cent, so we think there are plenty of opportunities to grow," Mr Goyder said.

The group's Bunnings hardware division reported revenue of $5.26 billion in 2007-08, up 12.6 per cent on the previous year, while earnings before interest and tax rose 16.8 per cent to $569 million for the period. Bunnings operates 172 warehouse stores, 58 small-format stores and 20 trade centres.

Wesfarmers, which also owns Coles, could face a challenge from its chief rival Woolworths, which is believed to be putting together a strategy to break into the hardware sector. Woolworths recently had discussions with Australia's No. 2 hardware chain, Mitre 10, but did not make a formal buyout offer.

The chief executive of Woolworths, Michael Luscombe, has refused to comment on the speculation of a hardware play for the supermarket, liquor and apparel retailer.

Mr Goyder said Wesfarmers always believed it would eventually face a new entrant.

"Bunnings is in a very strong position because of its existing store platform and what's in the pipeline. We think we have a very good portfolio of stores and a good pipeline of stores," he said.

"If others come in, then we will treat them like any other competitor, make sure that we do better."

He said the success of the US supermarket discount chain Costco, which will open its maiden store in Melbourne next month and is seeking planning approval to build its first Sydney store, would depend on its access to capital and sites.

Costco is a membership-based warehouse group where customers must pay an annual fee to shop at the store and gain access to heavily discounted groceries, homewares and other products.

"The Costco model, as I understand it, hasn't been that successful in the UK, so it will depend on how Australians adapt to that model  the membership model  and it depends on how the business performs."

On the outlook for retailers, Mr Goyder said the trading environment was improving, although it was difficult to assess because of the impact of the Government's stimulus package.

Last week Woolworths reported that group sales had grown 7.5 per cent for the year to June 30. Its supermarket division, which includes Australia and branches in New Zealand, posted sales for the period of $42.33 billion, an improvement of 7 per cent.

Wesfarmers will release its full-year result on August 20.

Shares in Wesfarmers rose 31? to $26.35. They are up 55 per cent for the year to date.