Homebase challenges ahead as Bunnings enters UK
Wesfarmers will spend more than $1 billion rolling out the Bunnings hardware brand to the United Kingdom and Ireland within five years, following the $705 million acquisition of home improvement chain Homebase.
The Coles owner confirmed that Homebase’s parent company, Home Retail Group, had approved its bid for the chain, which is the second largest in its market.
Bunnings will take over Homebase’s 265 stores which will be rebranded Bunnings and will open a handful of pilot warehouse style stores.
“Once we have successful pilot stores we will introduce the Bunnings offer more widely… across a three- to five-year period,” Wesfarmers managing director of home improvement, John Gillam, said.
And there it is – simple: the hugely successful Bunnings business (and I personally think currently within our top three “fittest” retailers domestically) is taking on the world, expanding into Great Britain, taking on our ashes opponents and blazing a trail for Australian retail.
At face value this looks to be a winner and as Richard Goyer, Wesfarmers CEO, says “we went in with our eyes wide open.” So will it be as straightforward as it might seem?
Bill’s viewpoint makes for an interesting perspective on the manner in which similarly looking markets often have nuances lying beneath the surface.
“I think Wesfarmers will have challenges” with the Homebase model. It is a business really “stuck in the middle” with no differentiating positioning or competencies, Bill said.
The market has totally changed around Homebase:
- Younger generations have lost many of the domestic skills that previous generations had e.g. cooking, mending, DIY, gardening etc.
- Health and safety legislation now forbids you to do many tasks e.g. changing a light switch – you need to get a certified electrician, plumber etc to do it for you.
- Higher incomes, cheaper products and time constraints have led to attitude changes – people just throw stuff away and buy new things, rather than fixing them.
- High immigration from Asia and East Europe has led to a supply of low cost workforce with at least minimum skills (sometimes very good skills), who will do jobs cheaply for cash. We are moving to the Chinese model (to which B&Q, Hope Depot etc are struggled to adapt) of “let someone else do it” rather than DIY. These tradesmen go to Wickes, B&Q Trade Counters etc for price discounts and a different experience.
- The home decoration market is under pressure from new High Street brands like Dwell, fashion retailers like Next moving strongly into homewares and online brands like Brand Alley.
- This market has become very fashion-focussed which is a different business model in respect of product lifecycles, margins, mark-downs etc. Homebase ranges always look very fragmented – tons of product (with reduced prices), or none of it!
- In addition, the UK is a small island and is now building the smallest new houses in Europe – not much room for stuff! Small kitchens, bathrooms, bedrooms etc – so small orders of storage units, which is a big part of the business.
- At the same time the cost of running large edge-of-town stores is increasing due to increasing rents, minimum wage legislation, higher utility bills etc. They are also less attractive to shoppers as roads become more congested and large items can be ordered online and delivered to your home.
In addition Britain’s home ownership ratio has slipped to 65 per cent while Australia’s is circa 72 per cent – the appetite for renovations, (with lower cash costs) must surely be linked to these indices.
Changing consumer, market and legislative context, all define the battleground for Bunnings’ growth in the UK. We believe their wide range, aggressive pricing, category specialisation and high customer service levels will stand them in good stead.
Victory won’t be as sweet if the battle is too easy, and this may not be easy.
(With thanks to Bill and our English partners).
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