Essential reading for retailers and suppliers in the home improvement market
Industry consultant Colin Petty offers his thoughts on Bunnings' plans for Homebase Perhaps it's not really that surprising that HRG chose to offload Homebase. If the HRG management and shareholders are already assuming that being taken over by Sainsbury's is where Argos's future lies, it was sensible to first get rid of a subsidiary which Sainsbury's could hardly have wished to buy. After all, if they wanted to own Homebase, they would have kept it instead of selling it all those years ago.

Whether Bunnings' plans for Homebase are the right ones, only time will tell. It's a brave move to announce in advance that you're going to dump one of the best-known brands in the UK DIY market, and replace it with one which must have absolutely zero brand awareness amongst its target audience.

Having said that, it's noticeable that the announcement of the deal, and of Bunnings' intention to consign the Homebase name to history, has been followed by a near-complete lack of reaction. Pretty well everybody in this country must have heard of Homebase, but it seems none of us are much bothered by its imminent disappearance. Contrast this with the howls of dismay a few years ago at the short-lived rebranding of Royal Mail as Consignia, for example. In other words, it's a good example of the difference between brand awareness and brand loyalty. Brand awareness means just what it says: that people have heard of it. Brand loyalty means they actually value it. Think Reliant Robin: everybody knows what it is, nobody wants to be seen driving one.

Presumably Bunnings have done their due diligence, and know what they are buying; but it has to be said that Homebase's performance over the past decade has been less than sparkling. The latest round of store closures isn't yet reflected in the accounts, but there have been other cost savings. The latest headcount figure, for instance, was 15,494, compared to a 10-year average of 18,336; this translated into staff costs last year of 14.2% of turnover, down from a 10-year average of 15.1%. Stockturn last year was 3.5 times, compared to a 10-year average of 3.4. But despite this, the latest operating margin of 2.1% was no better than the 2.2% achieved in 2007, the last full year before the global crash; the gross margin of 45.6% was lower than the 10-year average of 46.9%; and the return on capital of 1.8% is unimpressive compared to the 15.8% achieved 10 years ago in 2005.

Underlying all this, of course, is that fact that Homebase has consistently failed to achieve any meaningful growth. Annual sales over the past 10 years have fluctuated between a peak of £1,508m in 2007 and a low point of £1,355m in 2013, with an annual average over the 10 years of £1,443m. Last year, the figure was £1,409m. Even when Focus exited the market, theoretically leaving £500m of DIY sales up for grabs, Homebase failed to take up any of the slack (although to be fair, the same is true of B&Q - only The Range seemed to benefit from the Focus collapse). But there's an old saying that in business, you're either going forwards or going backwards, and there's no such thing as standing still. Well, take that as you will; it would be difficult to claim that Homebase has been going forward.

So what of the future? Bunnings believes that tactics like its regular 'sausage sizzles' which drive traffic into its Australian stores, will work in the UK market as well. They may be right - but they will have to fry a hell of a lot of sausages to put the sizzle back into Homebase's performance.

View User Profile for Colin Petty Industry consultant Colin Petty considers developments in the DIY market.






Posted by Colin Petty | 17 February 2016 | 18:25 | More from: Talking Point

Comments

17 February 2016 18:30:39
By SJP
Definately Homebase needs a major overhaul, new name, new pricing, more aggressive on-line pricing and this is the time to do it, not in 6 months, now. Homebase has always been more expensive than B&Q and Wickes so for me was never the first choice.
17 February 2016 18:29:39
By cremola
Call it what you like, unless it raises its game in customer service and staff training its dead in the water.
17 February 2016 18:28:39
By Duncan
I agree the name Texas is still known and respected by the main DIY buying group (40-65) as soon as it became Homebase the growth stopped. They could once again become the Big One.
17 February 2016 18:27:39
By Samboy
The EDLP way - everyday low prices strategy is working for customers and staff.
17 February 2016 18:26:39
By Robin
Bunnings would do well to consider rebadging Homebase as Texas Homecare. Texas were and could be again the Lidl of DIY. The Issue with Homebase is it was too "fluffy" and no one was fooled by its pricing structure which was/is one of invented high prices reduced down after a minimum period dressed up as discounts.
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