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‘Repositioning of business’ hits Bunnings pre-tax profits

Published: 17 August 2017 - Fiona Garcia
 

Bunnings reported a £54 million ($89 million) loss before interest and tax for its first full financial year of trading its UK and Ireland business since the acquisition of Homebase, as the retailer counts the cost of new store openings and walking away from ‘softer’ product categories.

The figure included £19 million-worth of “one-off transition and restructuring costs”, including overheads associated with the establishment of the Bunnings brand in the United Kingdom and Ireland and the pilot store programme.

Operating revenue for the year reached £1,229 million ($2,072 million) but parent firm Wesfarmers said trading during the period was affected by “significant disruption”, as it worked to reposition the Homebase business to “a core home improvement and garden offer”.

The repositioning of the business marks the first phase of Wesfarmers’ post-acquisition plan, which it has dubbed ‘Building strong business foundations’, and saw the retail invest in wider product ranges and greater stock depth, as well as a focus on maintaining low prices. “The volume and pace of repositioning activity affected store execution and, consequently, trading performance,” said the company.

Sales of kitchen and bathroom products were particularly disrupted by these changes to the business, as well as Bunnings’ decision to cease installation and in-home services within the category.

Sales growth in other core home improvement and garden categories was “encouraging”, said Bunnings. However it was insufficient to offset the decline in kitchen and bathroom sales, as well as the impact of the exit of non-core ranges such as soft-furnishings and indoor furniture and price deflation following the introduction of EDLP pricing. Talking to DIY Week in June this year, Bunnings UK & Ireland managing  director PJ Davis said Bunnings had made the decision to walk away from a lucrative soft furnishings business because it did not fit with its core home improvement offer. 

Bunnings UK & Ireland MD PJ Davis is confident that, despite walking away from certain categories, the repositioning of Homebase towards Bunnings
Bunnings UK & Ireland MD PJ Davis is confident that, despite walking away from certain categories, the repositioning of Homebase towards Bunnings' core home improvement values is a winning strategy

At the time, he said: “When we repositioned the Homebase kitchen business, we walked away from about £50 million-worth of business. It was a big call… We did that because we wanted to have a far less complex execution around kitchens.

“We also walked away from about £100 million-worth of business in soft furnishings, so it was a very strategic choice we had to make…We don’t need soft furnishings to execute home improvement and that’s our belief.”

Four Bunnings Warehouse pilot stores were opened during the period, with the retailer reporting that “early performance has been encouraging” and plans announced in June that it would be doubling its store roll-out programme. As a result, between 15 and 20 pilot stores are expected to be either trading or nearing completion by December 31, 2017, subject to relevant approvals.

Commenting on the result, managing director, PJ Davis said: “While there is still more work to be done, the team has made good progress in repositioning the Homebase business with a core home improvement and garden offer with ‘Always Low Prices’.

“During the year we successfully opened four Bunnings Warehouse pilot stores and we look forward to bringing the Bunnings offer to more communities across the UK in the run-up to Christmas with the team working hard to have 15 to 20 pilots open or near completion by the end of the year.” 

Managing Director, Bunnings Group and Managing Director, Bunnings Australia & New Zealand Michael Schneider added: “We are building and developing a strong team to support improved execution across the Homebase stores and the roll out of more Bunnings pilot stores. I am impressed with the strength and relevance of the offer and the competitive value proposition in the Bunnings pilots as well as the hard work of our team across the business.”

 

 

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