"Homebase generates a major part of its revenues from showroom categories that are notoriously difficult to move to an EDLP approach when customers are used to constant ‘50 per cent off’ promotions. 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 — not just B&Q and Wickes, but also Screwfix, Selco, Toolstation, as well as the Builders Merchants.
"Building brand awareness takes time. Just as Bunnings is a high-profile sponsor of Australia’s popular Big Bash cricket tournament, Screwfix recently started to sponsor the TV coverage of England’s football matches, building its brand awareness in addition to the strong brand loyalty it generates.
"The arrival of Bunnings, the continuing rise of Screwfix and the value/discount retailers allied with B&Q and Wickes’ commitment to price competitiveness will lead to greater competition on price.
"While the end customer will benefit, margins for both retailers and suppliers will be further squeezed.
"Cost reduction and efficiency programs will be essential to provide a ‘war chest’ to fund reduced prices. Not only this, but we believe it will become harder to use price as a differentiator, as competitive prices (potentially with an EDLP philosophy) become a ‘non-negotiable’ factor."
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