Is offshore expansion for Bunnings risky business?
Wesfarmers has acquired the UK’s second largest home improvement chain, Homebase, from its parent company, Home Retail Group for $705 million. Bunnings managing director, John Gillam (pictured) said the acquisition represents a “compelling opportunity” to enter the UK home improvement and garden market.
In a company statement to the Australian Securities Exchange (ASX), Gillam said, “Homebase has an established and scalable store platform with strong representation in high density areas. The stores are well-sized, support warehouse merchandising and a low cost operating model.”
“The acquisition is the first step in building a further growth platform for Bunnings with additional planned investment of approximately $1.04 billion in the Homebase team and assets to build a new Bunnings-branded business over three to five years. We will combine essential local elements with the best of Bunnings to bring customers in the UK and Ireland an exciting new home improvement and garden offer.”
Wesfarmers managing director, Richard Goyder described the acquisition as a “long-term value creation opportunity” for Bunnings which will “complement the strong growth trajectory of the Australian and New Zealand business.”
UK home improvement market
Goyder said the UK home improvement and garden market is large and growing with strong fundamentals.
“The opportunity to enter this attractive market has been comprehensively researched and carefully considered by Wesfarmers and Bunnings. The Bunnings team has spent significant time researching the market and closely studying international retail expansions into the UK and other markets. Detailed due diligence has been completed and implementation and improvement planning is well advanced,” he continued.
The UK home improvement market is highly fragmented with the two top players holding less than 15% market share and is forecast to grow at a similar rate to Australia. Residents also live in smaller and older dwellings, with 56% of England’s housing stock over 50 years old. There are also higher levels of wear and tear due to housing sizes and climate, and in turn, higher refresh and replacement activity and weighting of spend in key categories (kitchens, bath, flooring & garden).
New management underway
Current director of store operations for Bunnings, Mike Schneider, will take the reins as managing director. Current director of merchandising and store development, Clive Duncan, has been appointed as chief operating officer, while general manager of information technology and financial services, Justin Williams, will fill the role of chief financial officer.
Meanwhile, current COO, Peter Davis, will become managing director for Bunnings UK and Ireland, and current CFO, Rodney Boys, will be finance director.