Bunnings pilots will create key opportunities for suppliers

Chance to add to new Australian owner's broader offer

Homebase: Bunnings planning for next 20 years in the UK and looking to develop long-term supplier relationships - image:  HW
Homebase: Bunnings planning for next 20 years in the UK and looking to develop long-term supplier relationships - image: HW

Plans are developing for Homebase after Wesfarmers' £340m February purchase of the 265-store British DIY/gardening retailer, with the chance for suppliers including growers to add to a broader offer being introduced by the new Australian owner.

Four-to-six pilot Bunnings Warehouse stores situated "north of London" will open between February 2017 - at the start of the gardening season - and the end of the financial year on 30 June 2017. Further capital investment of £500m by Bunnings' owner Wesfarmers is dependent on the pilot stores being successful, though Bunnings is keen to emphasise it is planning ahead in the UK for 20-plus years and it is not a private equity investor. This means recent issues such as Brexit can be seen in a longer business context and the company will be able to build long-term relationships with a bigger range of suppliers.

Store closures have stopped but Homebase will not consider any new outlets until the pilots are working. Omagh in Northern Ireland is the latest of 18 to be reprieved within the chain after a renegotiation of tenancy.

Phase one of the new Bunnings-branded offer will be introduced over the next three-to-five years to "combine essential local elements with the best of Bunnings to build new business". This will include more local sourcing, including plants. The warehouse format will include "lowest prices, wider choice with trusted brands and great service". Opening hours could be extended, while the owners will aim at trade as well as consumer customers, seeing more of a builders' merchant format. Homebase has already stopped selling indoor furniture and soft furnishings. The group said it sees no point in selling at higher prices than rivals.

The "always low prices" approach will mean not having discounter-style seasonal plant promotions and having more local buying and customer-facing staff, such as in marketing. There will be higher stock weights and wider assortments, including for plants and gardening goods.

Homebase said it has already sorted out stocking problems. Bunnings chief executive John Gillam said Homebase had been "out of stock" too much. "We are not particularly enamoured with the way it goes to market," he pointed out. "It's not a particularly well positioned business. But we don't think we have paid too much for a poorly positioned business."

He added: "We're not going to be too shaken off our path if we are boring people across the next couple of years because we haven't got any flash results to show. We are generally pretty long-run, long-term focused operators. We have got about 330 trading locations across Australia and New Zealand and there are hardly two the same."

The average Homebase store footprint is 4,500sq m, while the average Bunnings is 7,000-8,000sq m. Gillam said: "Twenty-five per cent of our fleet across Australia and New Zealand is the same size as the Homebase fleet so we understand merchandising intensity in that size format. We have embraced variability on property size as a way of fuelling growth versus trying to find the same site everywhere and being stymied by our inability to do that."

Fragmented market

He said the £38bn British market is highly fragmented, with the top two players having a combined market share of less than 15 per cent. "We see a more fragmented market and that is attractive to us. We paid for a platform," he explained. "It's very hard to get a network and start from scratch and that has proven to be the case in this (Australian) market. We don't expect the first store to knock the lights out. Stores one, two and three have got to do some different things as we work out what is more impactful, more space-efficient and more customer-friendly."

The new owner has large planterias in Bunnings in Australasia, up to 40,000sq ft, indicating how much importance Bunnings places in gardening. While the UK has a shorter gardening season than Australia, it is more similar to New Zealand or Tasmania. In Australasia, online sales are less important than in the UK because of the size of the country and lower population, with websites being used more for research. The new owner will prioritise bringing higher store merchandising standards to Homebase, with refits likely. Bunnings stores are refitted every five or six years.

Long-term growth will be through a stronger team, better stock flow, higher productivity and deeper community involvement. This will all include more customer value, a better customer experience, greater brand reach and more merchandise innovation, which will be led by big brands. Rival B&Q has moved towards own brands in recent years.

Generally, the owner wants to stay quiet on plans after having to deal with challenges in Australia over the past five years as Australian retailer Woolworths and US retailer Lowes launched rival DIY chain Masters, a move that ended in failure and a store sell-off.

Staff - Bunnings line-up takes shape for rebrand of Homebase

New Homebase staff are led by 33-year Bunnings veteran managing director Peter Davis, who has been in the UK on and off for two years researching the market and concluding that the culturally similar Homebase DIY/garden centre chain offered the best base to develop Bunnings overseas rather than in China or a developing country.

Also from Bunnings are finance director Rodney Boys as well as general managers Craig Castelino (merchandise), Shane Mealor (store development), Craig Wallace (operations) and Keith Murray (marketing). Property general manager Andrew Mason is ex-Halfords and Wickes. HR general manager Martina Kay is ex-Marks & Spencer. Sarah Coldrake is head of garden/lifestyle and Martyn Hill is plant buyer.

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