VIDEO: Strategy from Down Under almost sent Homebase under

Garden Centre Retail speaks with Andy Brian, partner and head of retail, law firm Gordons about the Homebase situation.

 

There are few home comforts for Homebase right now. The DIY chain confirmed on August 31 that it will close 42 stores later this year, resulting in 1,500 job losses.

42 Homebase stores follow 16 shut earlier in the year

Homebase has already shut 16 stores in 2018, following the aquisition by Hilco Capital. Creditors have approved a proposed Company Voluntary Arrangement (CVA).
 
A CVA is an insolvency process enabling retailers to close stores and reduce rents within a wider restructuring plan. This represents the continuation of a recent trend for major retailers.
 
Homebase joins other iconic retail brands like Mothercare, BHS, Debenhams and House of Fraser in entering a CVA in recent months.
 
It is easy to speak with the benefit of hindsight. It seems that the business model pursued by Homebase previous owners, Wesfarmers, wasn’t suited to the UK.
 
Product ranges such as designer kitchens, and concessions were dropped, shaving millions in sales.
 
Wesfarmers’ strategy was to try to compete with key competitor B&Q and others such as Wilko, The Range and the supermarkets. They didn’t build on Homebase’s strengths, and differentiate.
 
It didn’t work. Homebase has lost its reputation as an aspirational home and garden brand. It hasn’t given customers enough reasons to spend there instead of the others.

Poor product decisions added to the mistakes

There were also poor product decisions, such as selling barbecues during one of the coldest February’s in recent history.
 
These were basic errors on what products and services to offer to core customers. It may be unfair to say that Wesfarmers tried to import a successful Australian strategy into the UK market. That’s what it looked like from the outside.
 
Hilco now reportedly intends to reinstate the Laura Ashley and Habitat brands to stores, as part of £25m investment into the chain.
 
What this cautionary tale does show is that customers vote with their feet.
 
Wesfarmers bought Homebase for £340m in 2016. Sales and profitability fell so fast that it sold for £1 within two years, and is now under a CVA.
 
As well as closing 42 more stores, Hilco has been able to cut rents on 70 more, including rent reductions of 90 per cent on 18 of those. Homebase’s announcement that this has been necessary because it faced “unsustainable” rental costs may be true. A business’s costs are only unmanageable compared to its returns.
 
Rival B&M has seen a 25 per cent increase in profits in 2017-18 and opened 47 new sites over the year.
 
Homebase will be hoping that this CVA will give it a “platform to turn the business around and return to profitability.”
 
Homebase needs to get back to basics of offering core customers the products and services they actually want.

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