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In their study "UK DIY. Big bets placed - who will win?" the corporate consultancy mdj2 analyses the British market - and the hot topic Homebase. Here is an extract:
Just over two years after it acquired Homebase, Bunnings-parent company Wesfarmers has sold it to Hilco for just GBP 1 and the existing Bunnings-branded stores will be converted back to the Homebase brand (assuming they are kept in the portfolio), ending another example of an unsuccessful international expansion by a retailer with a leading brand in its domestic market.
From a financial performance perspective the results in the six months to December 2017 were far worse than many sceptics would have predicted: losses of GBP 97 mio, sales decline of -15.7 per cent, write-down of the investment in Homebase by AUD 931 mio (ca. GBP 540 mio).
While the market conditions (including bad weather) did not help Q1 2018 performance (like-for-like sales -15.4 per cent, total sales -13.5 per cent), Wesfarmers management have admitted that the losses have been mainly self-inflicted.
Because the new Bunnings management in 2016 decided to "exit" from the existing Homebase proposition pretty much immediately (new EDLP-based pricing strategy, exit "soft" categories, reduce exposure to Big Ticket categories including stopping installations), the challenge was always going to be how quickly Bunnings could establish a successful new format, while minimising the inevitable reduction in performance from the remaining Homebase-branded stores.
Just over two years after it acquired Homebase, Bunnings-parent company Wesfarmers has sold it to Hilco for just GBP 1 and the existing Bunnings-branded stores will be converted back to the Homebase brand (assuming they are kept in the portfolio), ending another example of an unsuccessful international expansion by a retailer with a leading brand in its domestic market.
From a financial performance perspective the results in the six months to December 2017 were far worse than many sceptics would have predicted: losses of GBP 97 mio, sales decline of -15.7 per cent, write-down of the investment in Homebase by AUD 931 mio (ca. GBP 540 mio).
While the market conditions (including bad weather) did not help Q1 2018 performance (like-for-like sales -15.4 per cent, total sales -13.5 per cent), Wesfarmers management have admitted that the losses have been mainly self-inflicted.
Because the new Bunnings management in 2016 decided to "exit" from the existing Homebase proposition pretty much immediately (new EDLP-based pricing strategy, exit "soft" categories, reduce exposure to Big Ticket categories including stopping installations), the challenge was always going to be how quickly Bunnings could establish a successful new format, while minimising the inevitable reduction in performance from the remaining Homebase-branded stores.
We are well aware of the low "price elasticities" (change in sales volumes as a result of changes in pricing) on many DIY products and Bunnings reduction in Homebase prices and switch from 'hi/low' to EDLP pricing will have had a drastic impact on what was already low profitability at Homebase.
Store standards and stock availability had noticeably improved but under Bunnings control, there was a limit to what could be done given how fundamental the dismantling has been of so many core aspects of the old Homebase operating model. At least Homebase pre 2016 had a clear proposition that was differentiated from those of B&Q and Wickes.
At the time of writing it is too early to say with any certainty what the new owners will do with the business. One of Hilco's success stories…
Store standards and stock availability had noticeably improved but under Bunnings control, there was a limit to what could be done given how fundamental the dismantling has been of so many core aspects of the old Homebase operating model. At least Homebase pre 2016 had a clear proposition that was differentiated from those of B&Q and Wickes.
At the time of writing it is too early to say with any certainty what the new owners will do with the business. One of Hilco's success stories…
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