Bunnings’ abysmal performance foreshadows exit from UK DIY market
A series of errors in Bunnings’ disastrous UK incursion looks set to force the retailer out of the DIY market in 2018, as today the DIY specialist announced a whopping £454m impairment charge and a pre-tax loss of £97m for the six months to December. It has begun a review of the business which will conclude in June, and while it is weighing up a number of options, it appears that Wesfarmers’ ill-considered policies have backed it into an untenable corner.
Paying £340m for Homebase in February 2016, Wesfarmers had initially planned to transform the 260 store network into Bunnings stores, following the success in Australasia. However, the rapid shift in product and pricing policy (moving from a promotional model to everyday low prices) has alienated regular consumers, compounded by the loss of local DIY expertise following the upheaval of management. As an immediate response, Bunnings Group MD Michael Schneider has halted capital expenditure on the store transformation program, but will complete the five stores currently under conversion.
A recent run of high-level executives leaving Bunnings UK and Ireland (BUKI) has also further fuelling speculation that all is not well at the top. The retirement of BUKI Managing Director Peter ‘PJ’ Davis swiftly follows his decision to take three-month holiday in January, during a critical time for the retailer and historically the best earning and most competitive quarter for the DIY market. Despite the announcement that BUKI will now be in the trusted hands of Damian McGloughlin, former B&Q operations director and a veteran of the UK DIY market, it is challenging to see this role existing in the long-term.
So what would an exit mean for UK retail? Firstly, it would leave around 250 Homebase stores and the 19 currently operational Bunnings locations left in the wind; an unwieldly network, with onerous lease obligations that would be almost impossible to offload as a whole. The expanding discounters B&M and The Range might be interested in a portion of these, but in a retail landscape focused on convenience and digital capability there is a palpable dearth of retailers lining up to take on such locations. Secondly, it would leave a 7 per cent gap in the DIY market, which would grab the attention of struggling market leader B&Q as well as proving a tempting opportunity for discounters looking to expand into new ranges.
This statement sounds a real warning for Bunnings, materialising in a 4.5 per cent fall in share price this morning. And although nobody was expecting a miracle turnaround after the retailer’s poor performance, these depressing figures show that Wesfarmers must consider all opportunities to lessen its exposure to the fraught UK market.
Author: Thomas Brereton, Retail Analyst, GlobalData