Woolworths Australia this week announced plans to move into the DIY sector with a joint venture with Lowe’s, America’s second-largest home improvement chain.

The move will bring Lowe’s big-box style home improvement stores to Australia in 2011. It will be Lowe’s first foray outside North America and the first joint venture of this kind for the retailer. The announcement follows Costco’s recent entry into Australia, suggesting that large international players are looking again at the market.

The venture will be two-thirds owned by Woolworths and one-third owned by Lowe’s, which expects to invest $100m (£61.7m) annually for the four years starting in 2010.

The two will be hoping to cash in on a pick-up in the country’s housing sector after a mild downturn, with low interest rates and generous government grants for first-time home buyers set to push up house construction sharply by the end of the year. The move will also provide another avenue for growth for the Lowe’s, which has been hit hard in its domestic market, with its most recent quarterly like-for-like sales down 9.5%.

As part of the venture, Woolworths and Lowe’s have made an offer for Danks Holdings, Australia’s second-largest hardware distributor. Danks would give the venture exposure to around 560 smaller, independent retailers in the sector.

“This is a tremendous opportunity to enter the AUS$20bn and growing home improvement market in Australia, at a time when the sector is under-served,” said Lowe’s chairman and chief executive Robert A Niblock.

“By partnering Lowe’s home improvement knowledge with the retail expertise of Australia’s largest retailer, we expect to develop destination stores in an environment that is comfortable and easy to shop.”

There is no doubt that Woolworths has been looking for an entry point into the home improvement sector for some time. Earlier this year, for example, the retailer reportedly abandoned merger talks with local hardware chain Mitre 10 due to problems with the franchise structure and shareholder voting structure.

However, Woolworths’ attempts were given renewed impetus following Wesfarmers’ purchase of Coles in late 2007, which united the Coles’ grocery and non-food operations with Wesfarmers’ highly successful Bunnings DIY chain.

➤ Bryan Roberts, global research director, Planet Retail. For more information contact us on:

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