Woolworths's $3 billion bid to take Bunnings down a peg with its Masters hardware chain could come to an early end following the sudden resignation of the retailer's chief executive, Grant O'Brien.
News of the 53 year old's departure came as Woolworths downgraded its full year profit guidance by $300 million to $2.15 billion and announced it would axe 1,200 staff.
Mr O'Brien will step down following a disappointing four-year tenure that saw the retail giant's supermarkets give ground to Coles and Aldi as Woolworths focused on preserving its world's-best profit margins at the expense of sales growth.
He was also one of the main architects of the decision to take on the $45 billion home improvement market dominated by Bunnings, which, like Coles, is owned by arch rival Wesfarmers.
The roll-out of Masters was internally dubbed "project oxygen" and was designed to rein in Bunning's runaway success.
But the execution has been poor and Woolworths has been forced to change its strategy multiple times.
Morningstar analyst Gareth James says the venture is losing around $200 million a year, while Credit Suisse analyst Grant Saligari says the venture is draining around $400 million a year from Woolworths.
Mr James says the business is likely to go once a replacement for Mr O'Brien is found.
"Maybe they shut it down, maybe they sell it somehow but I think a new CEO will be looking to resolve that situation," he said.
Chairman Ralph Waters said the company's board of directors remained committed to the turnaround strategy for its supermarkets division and Masters, but said the new CEO would be free to set his own agenda for the company.
However the appointment of a new chief executive could be several months off because Woolworths had no succession plan and Mr O'Brien will remain in place while it carries out a global search for a replacement.
In fact Mr O'Brien, who has been with Woolworths for 28 years, will officially remain an employee of the company until he turns 55 July next year so he can qualify for its defined benefits superannuation scheme.
Morningstar's Mr James said it was the problems with the supermarkets division, which has suffered sliding sales growth amid intense competition, rather than Masters, that likely cost Mr O'Brien his job.
He said Woolworths had ditched its long-term successful strategy of growing revenue and profits by keeping prices low and instead focused on lifting profit margins in recent years.
The consequence, he said, was that customers began to look for better value elsewhere, a trend that was exacerbated by the rollout of discount chain Aldi.
Woolworths has changed tack in the past few months, cutting prices and likely profit margins while looking to improve customer service.
It's also targeting $500 million in costs savings, which will result in the loss of 1,200 staff.
But as he announced his retirement, Mr O'Brien on Wednesday conceded the strategy hadn't worked so far, with comparable sales up just 0.7 per cent in May and June.
"I believe it is in the best interests of the company for new leadership to see these plans to fruition," he said.
Woolworths shares initially surged by about two per cent on news of Mr O'Brien's departure, but closed four cents lower at $26.80.
* The author owns shares in Woolworths
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