Tough market drives concern for Bunnings UK

Bunnings2Bunnings UK and Ireland (BUKI) managing director Peter ‘PJ’ Davis will look to roll out at least three new stores overseas by the end of fiscal 17, as shareholders and investors maintain their scepticism over the acquisition after it recorded nearly $50 million in first half losses.

The EBIT loss, which was underpinned by just over $1 billion in revenue, was far from music to the ears of investors, some of whom questioned whether a weakening UK market was primed for the expansion of the home improvement business.

Davis said that transitioning the Homebase business, including negotiating a swift exit from concession store deals, has been challenging – but that the conglomerate’s three phase plan for their UK operation was progressing well.

“We’re delivering good retail basics by introducing higher stock weights and wider assortments of core home improvement and garden products whilst also investing in price,” David explained.

“Sales are broadly in line with the rebate business and post a number of restructuring costs.”

Having established its UK leadership team, BUKI has now rolled out service training to over 10,000 team members and has begun the process of adding additional Bunnings Warehouse ranges after axing soft furnishings product lines.

While David admitted that he doesn’t like running a business at a loss, he acknowledged that it’s a period of consolidation and trial for the new venture, which is still looking to transition home delivery, various IT systems and call centre operations.

Transactions increased 9.1 per cent in like-for-like terms for the half, but as one shareholder pointed out those figures are inflated by aggressive discounting to clear Homebase stock that put pressure on EBIT.

Globaldata figures estimate that the transaction growth was offset by a 7-9 per cent decrease in sales value, with senior analyst Anish Dosani predicting challenging conditions ahead for the venture.

“The retailer must implement any key learnings from stores into the remainder of the Homebase estate immediately to help drive growth in what will be a challenging 2017 market.

“The DIY and gardening sector is becoming more fragmented and increasingly competitive as general merchandisers continue to capture share and Screwfix continues its stellar growth with its successful click & collect model.”

Dosani added that BUKI’s traditional approach to the market, which looks to compete on price, range and service is in danger of underestimating the ability of market leader B&Q to respond.

B&Q and Screwfix, both owned by Kingfisher PLC, recorded 4.6 per cent and 14.7 per cent sales growth respectively in like-for-like terms for 1H16.

Davis remains optimistic about the second half though, with chairman Richard Goyder noting that the seasonal peak for home improvement in the UK coming up.

“We aren’t seeing it weak in home improvement, we saw borrowing for housing at record highs in December and we’re expecting the market to grow,” David explained.

Davis said initial sales at the first St. Albans pilot are encouraging and that the business is positioned well to be a price leader in the market.

Wesfarmers kicked off their UK venture less than a month ago after acquiring UK-based home improvement chain for $540 million last year.


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