The chief executive of retail giant Wesfarmers has admitted the performance of Bunnings in the UK and Ireland is “obviously disappointing”, announcing the company will take $1.3 billion in writedowns for charges associated with the hardware chain just two years after the brand started its international expansion.
In a statement to shareholders yesterday, Wesfarmers confirmed there would be a non-cash impairment of $795 million in its half-year results related to the acquisition of the UK-based Homebase brand, which Wasfarmers bought for $705 million in 2016 with plans to convert the stores to Bunnings-branded outlets.
The losses also include a write down of $66 million relating to unsuitable stock, $92 million related to deferred tax assets, and an underlying loss from the Bunnings UK and Ireland store operations of $165 million.
Wesfarmers chief executive Rob Scott said in a statement a review of the Bunnings UK business is currently underway to get the best result for Wesfarmers shareholders given the combined writedowns, which at more than $1 billion amount to more than the purchase price of the Homebase business.
“We will take a disciplined approach to further capital deployment in BUKI (Bunnings UK and Ireland) and provide an update on the outcomes of the business review and our plans for a broader conversation to Bunnings at our strategy briefing day in June,” Scott said.
Less than two years ago, Bunnings Australia was asserting dominance over a failing Masters and Wesfarmers was looking to expand that success to a new market. So how did the company get here? Here’s a timeline.
Wesfarmers announced it had acquired the UK DIY brand Homebase in January 2016 for a purchase price of $705 million.
The plan at the time was to “reinvigorate” struggling Homebase stores in the UK and Ireland by converting them to Bunning stores, with then Wesfarmers chief executive Richard Goyder spruiking expected growth in the £38 billion ($67.5 billion) UK home improvement market.
“The opportunity to enter this attractive market through the acquisition of Homebase has been comprehensively researched and well considered,” Goyder told shareholders at the time.
Bunnings opened its first rebranded Homebase site in February 2017, complete with the well-loved Aussie sausage sizzle.
However, the initial offer of a snag in bread confused many UK shoppers, while the well-known staff-focused ads for the chain were also met with bemusement from both Australian and UK shoppers.
At the time, Wesfarmers committed to opening up at least four other Bunnings sites in the region by the first half of 2017.
In March 2017, then managing director of Bunnings in the UK and Ireland, Peter Davis, discussed the plans to launch an online store for Bunnings in the UK.
Bunnings has famously never offered an e-commerce model in Australia, and retail strategist at Retail Oasis Pippa Kulmar tells SmartCompany this is just one of the key differences between the Australian and UK hardware markets.
“You already had a bunch of different players sitting in the UK market, and the UK is quite sophisticated when it comes to e-commerce. Bunnings is one of the only brands that would not have had a strategy in that sense,” she says.
At Wesfarmers’ full-year financial results last year, the company revealed UK and Irish Bunnings stores had lost $89 million in the first year of operation.
Goyder said at the time the Bunnings brand was resonating well, but there had been challenges launching the brand overseas.
Kulmar believes the complexity of the initial expansion into the UK would have been significant for Bunnings, observing that big box retailers in Australia do not often choose competitive markets like the UK to expand to as their first tilt at global expansion.
“Here, we [Aussie retailers] tend to expand to New Zealand and leave it at that. But with this, it’s not like opening in New Zealand, where you have a general idea of what’s happening,” she says.
Instead, Bunnings would have been challenged with getting across the unique consumer preferences of UK shoppers in the DIY market as quickly as possible, Kulmar says.
“Although they speak English, it’s quite different. It’s about understanding the consumer and the intricacies of that specific market.”
More challenging sales numbers were revealed for the brand’s UK offerings in October and November, with Wesfarmers confirming first-quarter sales across eight Bunnings and 244 Homebase stores had dropped 13%.
At the time, Wesfarmers chief executive Rob Scott said losses were expected to continue into 2018.
Kulmar observes that while Bunnings has incredibly strong brand recognition in Australia, the brand lacked this advantage in the UK and that would have made boosting sales challenging.
“Part of me thinks that it just takes time to build a presence in any market, and while Bunnings is well-known here, it’s not so much in the UK aside from Aussies and Kiwis who live there,” she says.
As Wesfarmers’ review of the Bunnings UK operations commences, the company lists 19 Bunnings-branded stores on its UK site, as well as more than 200 Homebase stores. However, Bunnings UK group managing director Michael Schneider has said there is still a plan for a “broader conversion” of Homebase stores to the Bunnings brand.
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