Why Bunnings will succeed in UK and Ireland

Bunning warehouseWesfarmers is confident it can crack the UK$79 billion UK home improvement market after sealing a deal to buy local player Homebase and rebrand it as Bunnings.

The Perth-based conglomerate, which also owns the Coles supermarket chain, has agreed to buy 265 Homebase hardware stores for STG340 million ($A705 million).

The acquisition, which was flagged last week, is the first offshore foray by Wesfarmers and is expected to establish the Aussie company as the second largest home improvement and garden retailer in the UK and Ireland. Bunnings has about 20 stores in New Zealand.

Bunnings MD John Gillam says the UK’s home improvement market was worth close to double that of Australia’s, with three times as many households.

“We see the acquisition as a very exciting opportunity and the first step in a significant program to build a new Bunnings branded business in the UK and Ireland,” he said.

“It provides us with the opportunity to leverage the best of Bunnings across an established store network in what is a large and attractive market.”

He said the company has spent more than a year studying the UK market and would carefully tailor its offering.

He said UK dwellings were much older than Australian houses, with the majority being more than 50 years old and requiring a lot of maintenance and repair work.

“There is also more wear and tear because of the smaller size of their dwellings and weather patterns that see people spending more time inside,” he said.

“This leads to higher refresh and replacement activity and a different weighting of spend in key categories like kitchens, bathrooms and floorings.”

He said Bunnings UK would capitalise on this as well as Brits’ love for gardening.

Homebase profit margins have slipped in the past decade from high single digits to just over one per cent.

Meanwhile, Bunnings’ earnings increased 11.1 per cent to $1.08 billion with same store sales growth of 8.8 per cent in fiscal 2015.

Gillam said while there have been some recent improvement there was room for further growth by introducing Bunnings concepts including its everyday lowest prices policy, a wide range of products and world-leading brands.

The acquisition and news that Woolworths is exiting its loss-making home improvement arm, which includes Masters, pleased investors who drove Wesfarmers’ shares up 80 cents, or two per cent, to $40.12.

Phillip Capital senior client adviser Michael Heffernan said Wesfarmers had a strong record of turning companies around given its success with Coles.

“Wesfarmers has a good track record and they are pretty well organised and Bunnings is a real powerhouse in this country,” he said.

“They know hardware and now with Woolworths getting out of Masters, Bunnings is in an even better position. Wesfarmers has both barrels firing at the one target.”

Wesfarmers plans to rebrand the entire Homebase network to Bunnings within five years and has hinted at adding more stores.

  •  By Petrina Berry of AAP

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