Australian owner Wesfarmers seeks a buyer for underperforming Homebase chain it acquired in 2016

Australian owner Wesfarmers seeks a buyer for underperforming Homebase chain it acquired in 2016

May 2018

Australian home improvement group Wesfarmers is looking for a buyer for its Homebase business after failing to turnaround the business following its takeover in 2016.  In its most recent trading report the company states that it is anticipating a loss of £97 million in the first half of 2018.

Sky News has reported that Wesfarmers has brought in investment bankers from Lazard to review its options as it prepares to retreat from the British DIY business, which has around 250 stores and employs 12,000 people.

Homebase has confirmed that a strategic review is ongoing but declined to comment on whether potential buyers had been approached.

Wesfarmers acquired Homebase in January 2016 for £340 million and had planned to rebrand all of the Homebase stores into Bunnings. So far 15 stores have been rebranded as Bunnings.

In February, Rob Scott, Wesfarmers’ Managing Director, said the group had written down the value of the Homebase chain by £454 million due to poor trading results.
Poor weather in February and March resulted in a further decline in sales which were already 15% down year-on-year.  This is said to have dampened any interest in keeping the business.

Scott said that the previously management team, led by Peter ‘PJ’ Davis, had “made mistakes”.

 “A lot of the issues we are dealing with today were, to be frank,  self-induced,” stated Scott.  “Pulling out of the UK is not our preferred option, but as I’ve said earlier, all options are open. There’s value in this network and we want to make sure that we reduce the trading losses and, hopefully, put the business on to a path to profitability.”

“Homebase is undoubtedly the most disastrous retail acquisition in the UK ever,” states GlobalData’s retail analyst, Patrick O’Brien.  “I can’t think of a worse one that has made these kinds of losses so quickly.”

Bunnings UK and Ireland sales have been hampered by “adverse” trading conditions in Homebase stores.  Total sales for the first quarter of the 2018 financial year fell 13.8% compared with the same period last year, reaching £276 million. Store-on-store sales decreased by 11.9%.

Commenting on Bunnings Homebase in DIY Week prior to news of the potential sale, Emily Stella, Senior Retail Analyst at GlobalData, stated: “Bunnings’ entry into the UK has been bold. The retailer removed home furnishings ranges from Homebase ... and has also halted installation and in-house planning services, and temporarily withdrawn its online offer.”

“So far this strategy hasn’t paid off, with Homebase/Bunnings last year logging its lowest sales over a 12-month period in seven years. But that was excusable given its relatively new entry into the UK, and the teething problems the retailer experienced as it ramped up discounting to clear Homebase stock.  However, this disappointing set of Q1 results, where sales fell to £276 million and transaction volumes by 5% in the UK, is a disaster, particularly given the high level of discounting at Homebase, which should have bolstered footfall.”

“While Bunnings has been slow to roll out its eight pilot stores, the retailer has effectively turned existing Homebase stores into Bunnings stores, minus the branding. This has left Homebase consumers confused, and has likely contributed to the reported decline in footfall as Bunnings fails to attract new customers to counter the loss of loyal Homebase customers.”

A recent Guardian report says: “Faced with the might of market leader B&Q, Homebase tried to attract female shoppers with “personalised mood boards” and attractive displays of cushions, throws and other nicknacks from brands including Laura Ashley and Habitat. But almost overnight that USP disappeared as the Australians chucked out the chintz en masse and turned its stores into no-nonsense DIY sheds.”

“Bunnings Warehouse stores are definitely not designed with women in mind.  With floor-to-ceiling shelving akin to the depressing, warehouse area near the checkouts in Ikea, the industrial chic of the recently refurbished store on the outskirts of Twickenham in south-west London is clearly aimed at hardcore DIY-ers.”

“There is a large section devoted to what looks like a breeding ground for power tools with £250 mitre saws nestling among an exhaustive selection of cordless drills. There are huge £700 four burner gas barbecues and £130 log splitters. Ideal for a large spread in the Melbourne suburbs perhaps. Not so fab for the average British back garden.”

TSJ will follow and report on the Homebase story as it develops.

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