Bunnings: Expansion ramps up

Wesfarmers Limited (ASX: WES) hardware chain, Bunnings, today announced that it will spend $1.5 billion on an expansion plan that will create 6,000 jobs in the next three years, as the company looks to grab a greater share of the $35 billion industry.

Bunnings says it plans to build up to 85 new stores in Australia over the next three years, which will also create up to 11,500 construction jobs.

The company is trying to over-shadow the rollout of rival Woolworths Limited’s (ASX: WOW) Masters branded hardware stores.

Woolworths has announced plans to open up to 150 stores over five years, with eight open currently and another 17 under construction.

Bunnings opened its 200th store today, 18 years after opening store number one in Victoria. It has the advantage of an established network and brand, operating experience and substantial scale. In three years’ time, Bunnings is still likely to have more than twice the number of stores as Masters, and retain some advantage.

It also means it will make it more difficult for Masters to ramp up its sales and enjoy the returns of its competition, as it competes against the incumbent market leader, who’s refusing to just lie down.

Fragmented market

Mitre 10, which is 50% owned by Metcash Limited (ASX: MTS) appears to be struggling, and may even fall by the wayside under the pressure from Bunnings and Masters. However, given the size of the home hardware market, and its fragmentation, its possible the big three (Bunnings, Masters & Mitre 10) will be able to coexist happily by taking share from suburban hardware stores.

Foolish takeaway

Whichever way you look at it, its good news on many fronts. Good for the struggling job market, good for home handypersons and probably good news for investors in Wesfarmers and Woolworths.

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Motley Fool contributor Mike King owns shares in Woolworths. The Motley Fool ’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.  Click here  to be enlightened by The Motley Fool’s disclosure policy.

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