Why the Aussie sizzler can’t trump the British Cumberland - What went wrong for Wesfarmers and what can retailers learn from it?

Why the Aussie sizzler can’t trump the British Cumberland – What went wrong for Wesfarmers and what can retailers learn from it?

Pro Ganguly Blog, Retail

The Bunnings sausage sizzle – something of an institution down under. Many an Aussie has ‘fond’ memories of being dragged down to their local Bunnings hardware store whilst growing up by their parents on a weekend to stock up for various DIY projects. But, what made it worthwhile was on exiting the store, they would be treated to the famous sausage sizzle – a barbecued sausage, wrapped in some form of bread, accompanied with sauces and sliced onions. So popular is the sausage sizzle, that some Aussies claim it to be their unofficial national dish. Minus the sausage sizzle, many a Pom kid will have similar memories of being dragged around their local B&Q or Homebase hardware store as kid on a Saturday morning by their parents and if well behaved, treated to a sausage or bacon sarnie on leaving the store.

So, when the Australian conglomerate Wesfarmers bought the ailing chain of Homebase DIY chain from Sainsbury’s in a deal worth £340m in 2016 and planned to rapidly convert the Homebase store estate to Bunnings branded outlets, they expected the transition to be simple, given their knowledge and expertise of the DIY market down under.

Less than 2 years after Buying Homebase, Wesfarmers have admitted that their transition plan has failed. Wesfarmers now expects the UK division of Bunnings to report an underlying loss before tax and interest of £97m for the first half of 2018 and it has taken a £454m write-down on the business (more than what it paid to acquire Homebase). It has also earmarked up to 40 Homebase stores for closure.

What went wrong for Wesfarmers/Bunnings?

Initially, Bunnings planned to convert the entire Homebase estate to the Bunnings brand within a couple of years. They started off by having a mass clear-out of Homebase staff, including a raft of senior management who knew the Homebase business (and the local UK DIY/Home Improvement market very well) – both at Head office and stores. Wesfarmers installed their own team – a team who thought they could take the Bunnings operating model from their home market and implement it in the UK.

The new team made some fatal errors – they failed to see that whilst the Homebase brand might have become a bit tired, it still had/has a special place in the heart of its loyal customers. In an established UK DIY/Home Improvement market that comprises of the ‘hard’ DIY chains such as B&Q and Wickes and ‘soft’ Home Improvement chains such as Wilko and Dunelm, Homebase offered a bit of both – you could go in to a Homebase store and buy the majority of what you could buy at a B&Q, but you could also buy products to enhance your home, not just Homebase branded, but from in store concessions such as Laura Ashley and Habitat.

The new management team started by getting rid of in store services such as kitchen and bathroom planning and removing the Laura Ashley and Habitat concessions. They also let the Homebase store estate continue its decline by stopping any further investment in to the store estate – something which is very evident if you’ve recently visited a Homebase store. Crumpling stores with poor lighting and signage and in desperate need of reinvigoration.

Instead, the new team pressed ahead with their plans to convert/open Bunnings branded stores. Bunnings – who? Most British customers have never heard of the brand. Now don’t get me wrong – I’ve been to a few Bunnings stores. They are impressive. Bright, open, airy stores with bright red fixtures and yellow POS that stand out with in store services such as key cutting, engraving, tool hire and children’s play areas to name just a few – along with everyday low pricing across the store.

But what is Bunnings’ USP? Why would anyone choose to go to a Bunnings when they can go to their childhood favourite B&Q or if you’re a tradesman, go to Wickes or Screwfix. By converting Homebase to Bunnings, Wesfarmers removed Homebase’s USP.

What can we learn from this all?

Firstly, one size doesn’t fit all. For retailers, the key to success is to understand the dynamics of their local market. By removing the majority of Homebase’s senior management, Bunnings lost that vital knowledge base. Secondly, Wesfarmers initially refused to adapt their operating model to the needs of a new market. To be successful in a new operating environment, retailers, no matter how established they are, shouldn’t be afraid to adapt their operating models for a new market (an example would be Tesco holding the No. 1 position in the majority of international markets they operate in – most of Tesco’s international businesses are run by local management teams who understand their local markets with British expats making up a very small percentage of the overall management population).

What’s next for Bunnings?

A complete exit from the UK isn’t completely off the cards, but they have over £1bn worth of liabilities linked to their store leases which may prevent them from making any short term decisions on exiting from the UK. Their best strategy now would be to grow the Bunnings brand, adapt it to the UK market, but also start investing in the Homebase estate, which is in desperate need for investment. Combine what’s good from Bunnings and Homebase and create a new format that offers customers an amazing shopping experience. A bit like taking the Aussie sausage and putting it inside a freshly baked British butty……..Only then will they become a credible threat to their competitors once again and hopefully guarantee the survival of the business as well as thousands of jobs, and return it to delivering strong returns for shareholders.