Bunnings sets out plans for its Homebase stores

In a recent strategy presentation in Australia, Bunnings Group chief executive officer John Gillam said: "Homebase provides an established and scalable platform", with "right-sized stores and a well-located network" that "supports warehouse merchandising" and has a "latent capability for a low-cost operating model".

Bunnings owner Wesfarmers bought 265-store Homebase on 27 February for £340m. Gillam said: "Four months post acquisition, acquisition thinking (is) validated" and "confirm[s] financial guidance provided".

Bunnings will develop pilots for Bunnings Warehouse and introduce a new Bunnings- branded offer while continuing with "essential local elements". Tag lines include "lowest prices, wider choice with trusted brands".

The company wants to service both consumer and trade, and sell "everything you want under one roof", as well as carrying "higher stock weights", being "always open" with "more brands you can trust", selling "more for less" and only advertising products if they are cheapest. A product example used was line trimmers for grounds work.

Bunnings said the Homebase "turnaround" is underway, with increases to range width and stock depth, "always low prices" marketing and removal of areas such as indoor furnishing with all concessions including Argos and Habitat going. The first pilots are expected later this year in three formats. There will be £7m restructure costs in the 2016 financial year.

The Homebase stores have format flexibility, said Bunnings, adding that it is "early days" but there are "big strong foundations" and "exciting mediumand long-term growth opportunities". It may call for more supplier rebates and renegotiate terms but insiders suggest the new owners will stay loyal to good suppliers. Prices all end in 1-4p and 6-8p, to give the impression of value.

Archie Norman (ex-Asda), Matt Tyson (ex-B&Q) and Mike Mire are on the new advisory board. Peter Davis is Bunnings UK and Ireland managing director. Homebase turnover is £1.5bn, with profit at £20m.

Horticulture buying staff remaining at head office include Martyn Hill, Gary Purnell and Angela Joyce. The structure includes no category managers. Gone are Jane Templar, Andy Goddard and Jon Kemp. Australian buyers may come in as well as Australian product.

Bank of America analyst David Errington criticised Bunnings for buying Homebase last month, stating: "Paying A$705m for a business generating A$40m of earnings before tax and interest and where that business is smaller-scale in a tough industry raises questions - and when A$1bn is being committed over the next five years to improve the business, we are highly sceptical."

mdj2 - Bunnings will narrow differences in the DIY market

The mdj2 report on the DIY market states: "Behind-the-scenes changes will no doubt also be taking place as Bunnings focuses on ‘retail basics’ in the first 12 months of ownership of Homebase. The other fundamental change is a belief in the scope for an expanded store network. Homebase has reduced its store estate from a peak of 342 in 2011 to 265 in 2016.

"In the acquisition announcement Wesfarmers say ‘detailed analysis indicates significant potential for store network expansion under new Bunnings format’. The risks inherent in acquiring a business with such a different proposition are significant. Moving to an everyday low-price platform quickly is likely to impact on margins in the short- to medium-term as loyal Homebase customers are used to a more promotionally driven approach.

"Attracting core DIY and trade customers into the new Bunnings-branded stores will take time and they may not flock to Bunnings in the numbers that they do in their home market, given the many existing competitors. The rapid and across-the-board changes to the senior management team at Homebase highlight the scale of change needed. The commitment to invest £500m in capex [capital expenditure] and working capital is impressive and Wesfarmers is taking a long-term approach, only targeting that the acquisition will enhance earnings in the third year after acquisition.

"The replacement of Homebase with Bunnings can only lead to a more competitive environment in the UK. Whereas there have been clear differences in the propositions of B&Q, Wickes and Homebase, the arrival of Bunnings will narrow these differences. Bunnings will compete more directly with B&Q and Wickes."

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