Real warning for Wesfarmers.
GlobalData retail analyst, Thomas Brereton has responded to Wesfarmers announcement of an impairment charge for Bunnings UK and Ireland (BUKI), which he believes could force the retailer out of the DIY market in 2018.
“It has begun a review of the business, and while it is weighing up a number of options, it appears that Wesfarmers’ ill-considered policies have backed it into an untenable corner,” he said.
“After purchasing Homebase in February 2016, Wesfarmers had initially planned to transform the 260 store network into Bunnings stores, following the success in Australia. However, the rapid shift in product and pricing policy has alienated regular consumers, compounded by the loss of local DIY expertise following upheaval of management.
“As an immediate response, Bunnings Group managing director, Michael Schneider (pictured) has halted capital expenditure on the store transformation program, but will complete five stores currently under conversion.
“A recent run of high-level executives leaving BUKI has also further fuelled speculation that all is not well at the top. The retirement of Peter PJ Davis swiftly follows his decision to take three-month holiday in January, during a critical time for the retailer and historically the best earning and most competitive quarter for the DIY market.
“Despite the announcement that BUKI will now be in the trusted hands of Damian McGloughlin, former B&Q operations director and a veteran of the UK DIY market, it is challenging to see this role existing in the long-term.
“This statement sounds a real warning for Bunnings. And although nobody was expecting a miracle turnaround after the retailer’s poor performance, these depressing figures show that Wesfarmers must consider all opportunities to lessen its exposure to the fraught UK market.”