Woolworths takes a stake in home improvements

MELBOURNE - Woolworths, Australia's largest retailer, will team with Lowe's to open 150 home-improvement stores in five years, creating a rival to Wesfarmers in the nation's A$24 billion ($29 billion) hardware market.

Lowe's, the second-biggest United States home-improvement chain, will take a one-third stake in the venture and Woolworths will own the rest. The companies agreed to buy hardware distributor Danks Holdings for A$87.6 million, Sydney-based Woolworths said yesterday.

Woolworths, which leads Wesfarmers in groceries and liquor, is taking on the Perth-based company's most profitable retail unit, where profit margins are more than triple those of its supermarkets. Through its Bunnings chain, Wesfarmers has annual home improvement sales of almost A$6 billion.

"Taking on the partner with expertise reduces the risk for Woolies and increases the risk for Wesfarmers," said William Seddon, who helps manage about A$300 million in assets at White Funds Management in Sydney.

"A successful entry reduces the potential upside for Bunnings, but shouldn't have been unexpected, given the abnormal profits Bunnings has been generating."

The Danks purchase gives Woolworths and Lowe's supply agreements with 583 Home Timber & Hardware outlets.

Wesfarmers has a margin in its hardware division, which measures earnings as a proportion of sales, of 11.2 per cent compared with about 3 per cent in its Coles supermarkets.

"We're interested in adding choice to the industry and we believe we can improve the pricing, product range and experience for customers," Woolworths chief executive Michael Luscombe said.

Woolworths, with more than 800 supermarkets across the country as well as "Big W" discount department stores, competes with Wesfarmers' 700 Coles grocery outlets and Kmart discount chain.

- BLOOMBERG