Bunnings: exchange rate price rises 'a challenge'

It will be "very difficult" to put prices up because wages are not rising as fast as inflation, according to Bunnings UK and Ireland managing director PJ Davis.

Homebase - image: FlickR/David Holt (under Creative Commons Licence)
Homebase - image: FlickR/David Holt (under Creative Commons Licence)

Many imported product prices have risen by up to 20 per cent post-Brexit and retailers and suppliers are attempting to decide who should bear the brunt of the increases.

Speaking to a BHETA suppliers meeting in Coventry last week, Davis said: "Inflation is going to be driven by exchange rates not wages, which makes it very difficult to put prices up. If we put prices up, less will be sold. If wages were going up and there was more disposable income it would be a good reason for prices to move." He said pricing is about trust because people can search prices instantly on the internet. "They know when you're ripping them off."

HTA director Carol Paris told Horticulture Week at the meeting: "We've seen Tesco raise the issue. Retailers will always resist price increases because they're trying to not pass on to the consumer. There has to be some sort of profit for everybody. It won't be until March or April 2017 when it will start to bite. Wages are not going up as fast as prices due to the exchange rate. There needs to be sensible conversation between retailers and suppliers."

Meanwhile, Bunnings plans to open four pilot stores by the end of June 2017 as it phases out the Homebase brand bought for £340m in January 2016. The first will be at St Albans, to open in February 2017. There are up to 10 Bunnings planned for the UK by the end of 2017. The St Albans store will include a covered area in the garden centre planteria as well as the removal of the mezzanine.

Gardening is one of the key strengths of the Homebase brand and " we want to make sure we don't lose that strength" as a Bunnings warehouse, said Davis. Bunnings has £500m to spend on the initial roll-out, transforming the DIY/garden centre business.

He told 350 DIY industry professionals at the BHETA event there is a "big job to be done" at Homebase, with areas such as tills and systems up to 20 years out of date. There are distribution, legal, property and HQ issues to separate from previous owner Home Retail Group. Bunnings will relocate within Milton Keynes next month.

Davis said the UK has a £38bn growing DIY market. Homebase stores are generally the right size and in the right places but he wants to add new builds as well as conversions. "In five years Homebase will disappear off the face of the world," he added. The 265-store estate "is a good base for building the Bunnings warehouse network".

The Australian 200,000sq ft or 145,000sq ft average Bunnings warehouse is too big for Britain because it is "hard to drive around here". He said Australian stores have a 15.5-minute drivetime ideally and up to $90m turnover, "but in the UK 15 minutes doesn't get you far".

He added: "We probably need a few more stores. I just don't think they will be as big. We'll convert a few pilots to find out what customers really want then convert a lot more. We also expect to build new stores and take over other properties, which is cheaper than converting our own stores."

The pilot will have a "wider assortment than anything you've seen in this country before". He explained how Homebase copied Home Depot for its warehouse format in 1994, with its family focus, coffee shop, playground, hire shop and kids DIY clinics. The UK pilots will also have the warehouse format, with the focus on hardware and garden rather than soft furnishings. "All the (range) changes we're going to make we've made."

Duvets and cups and saucers have been replaced by a lot more home improvement, timber, hardware and storage. "We'll buy where we can get best value and the best innovative product. It's not just value, it's easy to use. We'll source from wherever."

Davis said he and FD Rodney Boys made some mistakes this year when adding £80m of product to stop out-of-stock issues. "We were not going to allow empty shelves. In some cases there was too much stock. Some stores were a bit messy." Some 120 UK staff have made Australia trips, while 300 have been on leadership training programmes.

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