Woolies' ladder to growth

Woolworths' entry into big box non-food retailing is normally characterised as a looming battle with Bunnings. But it is much more than that.

Woolworths is modelling its big box stores on Lowe's in the US, which means that it will be tackling Harvey Norman and many others in furniture and appliances as well as the carpet retailers.

That means we are looking a much fiercer and wider war than a normal one-on-one tussle.

This is one of the revelations that is clear in our KGB Interrogation of Mitre 10 CEO Mark Burrows.

If you are a Woolworths shareholder you will cross your fingers after reading the interrogation and hope that Woolworths has made the right call.

In theory, Mitre 10 was the logical opponent for Bunnings in big box hardware retailing. Mitre 10 tried to launch big box stores but found that the big box system did not work along side its smaller Mitre 10 stores. It is now disposing of its big box centres.

Again in theory, Mitre 10 should also have merged with the Danks wholesale and a small retailer hardware chain, but the traditional rivalry and the price Woolworths paid for Danks meant that it did not happen.

The Burrows Interrogation alerts us to the fact that it is not easy to manage small hardware retailers and the big box format at the same time. Woolworths will need to be a lot cleverer than Mitre 10.

Meanwhile, Mitre 10 it trying to woo small retailers from the Danks chain into the Mitre 10 orbit pointing out that the small stores will be supplied by Woolworths as it runs large stores against them.

Burrows believes that we are seeing a re-run of the old service station boom of the 1950's and 1960's where it seemed that almost every corner in our major cities was bought by oil companies to establish petrol selling stations. Most of the stations were uneconomic and had to be shut down.

It was clear from the interrogation that this is a war that will be decided on service to the customer and who has the best and lowest cost logistics and stock management systems. Mitre 10, with its smaller stores, will need to do a lot of work in this area.

Woolworths has always had a lead over Coles in logistics and stock management and Bunnings will need to make sure that its systems are as good if not better than the Lowe's systems that Woolworths will embrace.