Today, Wesfarmers confessed it may have to – tail between legs – exit the UK market it set out to disrupt two years ago.

The company, which acquired Homebase in 2016 with the intention of replicating the success of its Bunnings brand in the UK, admitted to botching that mission.

Wesfarmers managing director Rob Scott was candid about the firm’s abysmal performance in the market to date.

He said the business has, as a result, taken a £454m hit in the form of an impairment charge, and was likely to file half-year losses of around £97m later this month.

He added that between 20 and 40 Homebase stores would be shuttered and he could not rule out an exit from the UK altogether.

Where has Bunnings gone wrong?

When Wesfarmers entered the UK all guns blazing, it did so in a hurry.

In its Australian homeland, it had come up against a new rival – Woolworths-owned DIY firm Masters – which threatened to eat away at Bunnings’ market share.

So the DIY giant looked to pastures new and was inevitably drawn to the densely populated UK, where other Australian retailers, such as Smiggle, were finding success.

“Retail watchers were wary from the off that Bunnings’ hard DIY offer risked duplicating the proposition B&Q already had sewn up. But the Australians were not deterred by the critics, nor the competition”

Taking little heed of the dominance of the UK’s biggest DIY player B&Q, Bunnings was eager to penetrate the market and said at the time it was confident that its proposition would resonate with UK home improvers.

Retail watchers were wary from the off that Bunnings’ hard DIY offer risked duplicating the proposition B&Q already had sewn up. But the Australians were not deterred by the critics, nor the competition.

Wesfarmers felt it got a great price – £340m – for B&Q’s biggest rival Homebase, which boasted a national coverage of stores but was suffering from declining sales.

So, without further ado, the firm sealed the deal, swept in and proudly planted its flag.

I DIY’d it my way

It became clear that Wesfarmers was naïve to the intricacies and sophistication of the UK retail market when it axed the entire Homebase leadership team, insisting that it would do things with its own people in the ‘Bunnings way’.

Confident to a fault, it installed Bunnings lifers to run the show, promoting chief operating officer of its Australia and New Zealand business, PJ Davis, to the helm of its new UK and Ireland division.

Davis, rather than an executive with experience of the UK market, was charged with overseeing the beginnings of the Homebase conversion.

“A seemingly rudimentary understanding of the UK market led to some poor decisions in the treatment of the existing Homebase business”

Alongside him, Rodney Boys joined as finance director and Craig Castelino was made Bunnings general manager of merchandise – both of whom boasted more than 20 years’ experience with Wesfarmers.

Some UK expertise was employed in the form of a three-man advisory board, which included M&S chairman Archie Norman, but this has failed thus far to compensate for an apparent lack of homework on the British consumer.

A seemingly rudimentary understanding of the UK market led to some poor decisions in the treatment of the existing Homebase business.

While Bunnings’ warehouse proposition and everyday low prices make it stand out from the crowd in Australia, the retailer quickly learned that the UK market is more sophisticated and arguably harder to woo.

Tearing the home out of Homebase

Wesfarmers was sure that it could improve the Homebase business by launching an everyday low price proposition, loading the aisles with product and culling the softer homewares items for which the retailer was known.

It rapidly did away with Homebase’s kitchen and bathroom fitting services, its home and soft furniture ranges and axed the Laura Ashley and Habitat concessions.

“In short, it took out all that made Homebase different from B&Q – and this did not go down well with loyal Homebase shoppers”

In short, it took out all that made Homebase different from B&Q – and this did not go down well with loyal Homebase shoppers.

After trying to introduce numerous new ranges and unfamiliar brands – as if filling a vast Australian warehouse – it struggled to shift stock and now Wesfarmers has been hit with costs of £37m relating to excess and unpopular items.

Bunnings group managing director Michael Schneider admitted to the firm’s mistakes and its shoddy execution: “It is clear that a significant amount of change has been driven through Homebase since the acquisition and the disruption caused by the rapid repositioning of the business has contributed to greater-than-expected losses across the Homebase network.

“Sales have been affected as non-core categories and concessions were exited ahead of the implementation of the Bunnings format, and investments in price and new ranges have not offset these lost sales.”

Sizzling out

The retailer debuted its Bunnings Warehouse format in the UK last February and has since completed 19 conversions.

While the DIY retailer argues that the performance of the existing stores is “encouraging”, some industry watchers remain unconvinced that it will resonate with UK shoppers. 

Its style of writing prices by hand with chalk, for example, is suggestive of a backwards approach – miles away from the digital advancements UK consumers have come to demand and expect.

Its failure to launch a transactional website also puts Bunnings behind rival B&Q, which has recently invested in a radical digital overhaul as DIY shoppers slowly but surely migrate online.

DIY SOS

According to Global Data, Wesfarmers’ ill-considered policies have backed it into an untenable corner.

And although it looks as though there’s a world of pain ahead for Wesfarmers and the 12,000 people it employs in the UK, it is not giving up yet.

The Australian conglomerate has kicked off a wide-ranging review of the business to identify the actions required to reverse its UK woes – and there are a few things working in its favour.

Firstly, the team of Wesfarmers lifers have now largely exited the business. Davis has retired, while both Boys and Castelino have returned to Australia, making way for a team with superior UK retail knowledge.

Damian McGloughlin, who spent more than three decades at B&Q, has succeeded Davis as managing director. He is joined by David Haydon – another former Kingfisher director – as chief operating officer.

“More light will be shed in June when Wesfarmers updates the market on its progress”

And, following the recent departure of Boys, Bunnings has appointed former Sainsbury’s and Tesco executive Andy Coleman as chief financial officer.

Meanwhile, chief competitor B&Q is far from firing on all cylinders. Sales fell 6.3% to £1.8bn in its first half as the Kingfisher-owned retailer battles with turbulent trading and “ongoing business disruption” sparked by boss Véronique Laury’s strategy. 

Schneider said the retailer would focus on improving the profitability of Homebase through “improved ranging and execution in stores”.

It also may have more success with the smaller stores it has started to trial. 

“The business will continue to use the pilots to test, learn, iterate, and improve the offer and roll-out process,” Schneider said.

More light will be shed in June when Wesfarmers updates the market on its progress.

Time to down tools?

Barring a minor miracle, come June, Bunnings will be declaring intentions to back out of its UK venture altogether.

From the perspective of Wesfarmers’ newly appointed boss Scott, the reasons to stay in the UK market and stick out the pain are no longer as compelling now as they were when Bunnings entered.

The Brexit vote, delivered months after Wesfarmers’ entry to the market, drove up sourcing costs, battered consumer confidence and stalled the housing market.

The people who masterminded the acquisition – including his predecessor Richard Goyder – are no longer pulling the strings at Wesfarmers, leaving Scott with no obligation to shoulder the risk the UK carries.

And what’s more, in Australia, the threat from competition is no longer a motivating factor for the ambitious Wesfarmers after Masters went out of business.

Scott will need a very good reason to stay committed to the UK venture, rather than downing tools.