Homebase is in a sorry state – frail after a much-vaunted takeover by Australian firm Wesfarmers ended, just two years later, in DIY disaster.
The blinkered conglomerate barged into the UK market with visions of demolishing the Homebase brand and replacing it with its Bunnings Warehouse fascia which is popular Down Under, and renowned for its power tools and ‘Sausage Sizzles’ snacks.
Wesfarmers turned out to be an irresponsible custodian of the once-loved retail chain. It botched the job, triggering plummeting sales and profits, and walked away from the venture altogether in May this year – tail between legs and £794million worse off.
But Wesfarmers is not the only victim.
A handful of Homebase stores were converted into the Bunnings Warehouse brand
The Homebase brand was tarnished in the process as its loyal customers scratched their heads at the ‘strategic’ decision to strip away cushions and lamps and load up stores with power tools and log-splitters instead.
Meanwhile, its 11,000 employees have been through the ringer, enduring the switch to Bunnings and back again, and now facing into more uncertainty as – under private equity ownership – the retailer instigates store closures and job cuts to get itself back on track.
New management, battling not just the mess Wesfarmers left behind, but also the torrid UK retail environment and volatile consumer sentiment, have boldly pledged to pick Homebase back up and start over… again.
Wesfarmers sold off old Homebase lines and introduced its own, leaving customers without the cushions and home furnishings it was accustomed to. It also neglected digital and online.
Boss Damian McGloughlin, who joined Homebase last year after more than three decades working for its rival B&Q, is steering the turnaround, alongside new owner Hilco, which took the firm off Wesfarmers’ hands in May for a nominal quid.
In one of its first big moves, the HMV-owner proposed a Company Voluntary Arrangement (CVA) to close 42 unprofitable shops and slash rents on others – in some cases by up to 90 per cent – to help it get a handle on costs.
The closures are expected to lead to around 1,500 redundancies.
In a statement, McGloughlin said: ‘Homebase has been one of the most recognisable retail brands for almost 40 years, but the reality is we need to continue to take decisive action to address the underperformance of the business and deal with the burden of our cost base, as well as to protect thousands of jobs.
‘The CVA is therefore an essential measure for the business to take and will enable us to refocus our operations and rebuild our offer for the years ahead.’
The proposal, complete with a ringing endorsement from the British Property Federation (BPF), makes for compelling reading.
Within it, Homebase insists that its current property mix, with associated rental costs, is no longer viable, while the BPF says Homebase has ‘demonstrated best practice’.
Which 42 Homebase stores are earmarked for closure?
Aberdeen Portlethen, Aylesbury, Bedford St Johns, Bradford, Brentford, Bristol, Canterbury, Cardiff Newport Road, Croydon Purley Way, Droitwich, Dublin Fonthill, Dublin Naas Road, Dundee, East Kilbride, Exeter, Gateshead, Grantham, Greenock, Hawick, Inverness, Ipswich, Limerick, London Merton, London New Southgate, London Wimbledon, Macclesfield, Oxford Botley Road, Peterborough, Pollokshaws, Poole Tower Park, Robroyston, Salisbury, Seven Kings, Solihull, Southampton Hedge End, Southend, Stirling, Swindon Drakes Way, Swindon Orbital, Warrington, Whitby
But, the retailer’s fate now lies in the hands of disgruntled landlords, who could feasibly put the kybosh on the whole thing.
For Homebase to make it past the first hurdle, 75 per cent of landlords need to vote in favour of the plan at a meeting on August 31st.
And it isn’t a shoe in.
Sentiment towards CVAs, particularly among landlords, is waning, with industry body REVO thundering that the ‘laudable’ system is being abused by retailers looking for a quick and easy way out of leases they agreed to.
2018 has been dubbed ‘the year of the CVA’, with a marked increase in the number of retailers and restaurant groups, including New Look and Carpetright, opting for this a-la-mode strategy. And with each passing CVA, landlords’ patience wears thinner, as they tend to end up shouldering the burden, while unsecured creditors are left largely unscathed.
House of Fraser’s CVA proposals went down like a lead balloon as the retailer failed to shed any light on how it might turn itself around.
Although it made it through the vote, a group of landlords later filed a legal case against the department store chain, which was settled before HoF was bought in a pre-pack administration by Mike Ashley’s Sports Direct.
There’s speculation now that Homebase landlords may follow suit, and are working with Begbies Traynor to compile a legal case to block its store closures.
If that’s the case, it would be catastrophic news for the DIY chain, which without a CVA would likely be pushed to the brink, putting all 11,000 of its employees and 241 stores at risk.
B&Q closed 60 of its shops and now has 320
One of the worst things Wesfarmers did when it bought Homebase for £340million was reverse the store closure programme that was already underway, greedy for more Bunnings stores. And, as it was planning on converting them, it didn’t sufficiently invest in their upkeep either.
Meanwhile, rival B&Q trimmed back its estate by 60 stores.
But there’s still room for a sizeable competitor to B&Q in the UK DIY market and, without its tail, Homebase could be restored to its former glory.
According to the Prophet Brand Relevance Index (BRI), Homebase still holds some valuable brand equity in the UK – it ranked 178th in 2017.
It also has a newly installed management team, bursting at the seams with UK DIY retail experience.
Details remain scant on the new strategy, but This is Money understands it may keep some of the more favourable elements of the Bunnings mix (fingers crossed for Sausage Sizzles!), while re-introducing the soft furnishings and decorations it was once known for.
Bunnings is well-known for its ‘Sausage Sizzles’. Proceeds go to local charities.
It will also ramp up its digital offer to match its rivals on home delivery options and click-and-collect.
Under previous Home Retail Group ownership, Homebase stores had Argos, Habitat, Laura Ashley and Carpetright concessions. Some of these could make a comeback too.
One source says that, if Homebase does decide to install concessions again, Carpetright would be open to striking up a new deal with it.
However, failure to get its CVA over the line, on the back of two years of trauma, is possibly more than Homebase could handle at this time.
And while landlords are not to blame for Wesfarmers’ failings and the fragile position Homebase was left in, they are now instrumental in its recovery.