Homebase takeover becomes tale of retail disaster

Australian owners write down almost £600m after totally misjudging market

British retailers have a long history of making a hash of overseas expansion, from Tesco's costly foray into the US with its now defunct Fresh & Easy chain to Marks & Spencer's disastrous takeover of preppy clothing retailer Brooks Brothers and B&Q's failed attempt to conquer China.

But it works the other way too, and the acquisition of the Homebase do-it-yourself chain by Australian retail group Wesfarmers must rank as one of the worst retail deals ever.

With its chain of 250 stores, including outlets in Dublin, Drogheda, Sligo and Belfast, Homebase was already struggling in the fiercely competitive DIY market before the Australians came sniffing around in 2016.

Wesfarmers wanted to convert Homebase to its Bunnings format, which had been so successful in the home improvement market Down Under. The deal was sealed, at a price of £340 million (€383 million), amid promises from the new Aussie owners that they would rapidly unlock the value in the Homebase chain.

It discontinued the most popular lines of kitchens and bathrooms and shrank the popular home furnishing ranges in favour of more power tools. Sales slumped

Less than two years on and the move has proved little short of a disaster. Wesfarmers has been forced to write down as much as £584 million on its new UK and Irish arm, way above the purchase price.

The business is expected to pile up losses of almost £100 million – and that’s just in the first half. The second half is unlikely to be much better.

British pup

There was some sympathy in the Australian press for Wesfarmers' predicament – as the Sydney Morning Herald ruefully put it, the group "was sold a British pup".

While there’s some truth in that, Wesfarmers itself is painfully up-front about what went wrong – probably because the executives in place at the time of the takeover have already made their excuses and left.

New chief executive Rob Scott, who has only been in the top job since November, admits the Homebase mess is a self-induced one. Despite having boasted at the time of the takeover about how much research it had done, the Australian company totally misjudged the market – and Homebase customers.

It discontinued the most popular lines of kitchens and bathrooms and shrank the popular home furnishing ranges in favour of more power tools. Sales slumped. It underestimated the demand for heating products in the winter – and presumably stocked too many barbies in the summer.

It removed popular in-store concessions such as Laura Ashley but perhaps the biggest blunder was sacking Homebase's entire team of experienced middle managers, some 160 in total. That was the work of Bunnings' Peter 'PJ' Davis, who was tasked with overseeing the Homebase transformation.

With hindsight, it was clear something was not quite right just after Christmas, when Davis announced he was returning home to Australia for three months to see his family.

“Now seems a good time,” he said. “I’ll come back fresh as a daisy and get on with it.” Not quite. The 59-year old is now taking retirement and will not be returning to the Wesfarmers fold in any capacity.

Mess

Scott, the man who now has to sort out the mess, admitted the Bunnings team had failed to appreciate the differences between the two markets.

This is a recurring theme in retail deals that fail. With Fresh & Easy, for example, Tesco wrongly thought it could serve up British-style ready meals across the Atlantic. But the American customers didn't take to them – and they certainly didn't appreciate the self-service tills they were forced to use.

Kingfisher’s B&Q, meanwhile, failed to realise that slapping on paint and banging holes in walls is not regarded as a leisure activity in China. The low-wage culture there means if you want some shelves put up, you pay someone else to do it.

The catalogue of errors at Homebase would almost be laughable if it weren’t for the fact that up to 2,000 jobs are now at risk as the Australians move to close between 20 and 40 stores as they attempt to turn the business round.

Pulling out of the UK altogether is a distinct possibility, although not the preferred option, according to Scott. His best course would be to keep a close eye on the new management team, headed by former B&Q executive Damian McGloughlin, over the next few months as trading builds up to peak DIY season over the spring and Easter.

And he’d be well advised to take a lesson from history – Tesco stayed in the US way too long, largely because its executives simply refused to accept they’d got it wrong. At least Wesfarmers appears to be under no illusions about that.

Fiona Walsh is business editor of theguardian.com

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