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Homebase owner to close up to 60 stores in CVA

Bunnings St.Albans back to Homebase 1

According to Sky News, Hilco Capital will announce plans next week to close as many as 60 Homebase stores, leading to the loss of at least 1,500 jobs.

Hilco, who purchased the chain in May from the Australian conglomerate Wesfarmers, for the nominal sum of £1, is expected to launch a Company Voluntary Arrangement (CVA), through the professional services firm Alvarez & Marsal, which will enable the business to close as many as 60 of the poorest performing Homebase stores.

Read - Wesfarmers abandons Homebase to Hilco for £1.

In 2012, Homebase operated from 341 stores in the UK and Ireland and under ownership of firstly Home Retail Group and then Wesfarmers, the chain has gradually contracted with more than 100 branches having already closed over the last six years. Since January, ten stores have closed or been given a closing date, including the first ever Homebase that was opened by their then owner Sainsbury’s on Purley Way in Croydon on 3rd March 1981.

A large proportion of the unprofitable branches are what we describe as ‘legacy’ stores, outlets that over the last 20 years have been inherited from failing competitors including Texas, Great Mills, Do It All and Focus DIY. Many of these have been unprofitable for years, but the business has been stuck with them due to long leases and as a result, have received little investment.

At least four of the most recently closed Homebase stores (York, Whitchurch, Chippenham and Hatfield) have been acquired and reopened as B&M Bargains, one of the fastest growing discount chains in the UK, with more than 540 stores. It’s anticipated that B&M will be heading up the list for the next tranche of Homebase stores to close.

For further information on CVA's read - This is Money - 'What is a CVA and can it save the High Street'.

The CVA and closure plan is not an unexpected move, after Hilco took over a troubled and deeply unprofitable business left behind by Wesfarmers, who pulled out of their first (and probably last) overseas Home Improvement retail venture. Wesfarmers attempted to reposition the Homebase business during 2016 and 2017, rebranding 24 of the stores as copy and paste versions of their very successful Bunnings Warehouse business, back home in Australia. However, Wesfarmers' strategy backfired spectacularly‎, forcing it to write off more than £540m and leave the UK, having achieved what is now recognised as ‘The most disastrous retail acquisition in the UK ever’ – The Guardian.

The badly managed and ill-fated venture left Homebase crippled with the wrong product mix for the UK market, alienating their previous target market and leading to a dramatic decline in sales and leaving the business losing as much as £20m a month.

In recent weeks, Hilco have started the process of rebranding the 24 Bunnings stores back to Homebase, although the changes at this stage are purely cosmetic, with new Homebase signs hung in place of the previous Bunnings signage.

Read – All change as Bunnings brands starts to disappear from the UK.

Fiona Cincotta, a senior market analyst at www.cityindex.co.uk provided the following comment for Insight DIY.

DIY chain Homebase will close up to 60 of its stores next week as it battles to stay financially viable. The decision has been made by its new parent company, restructuring specialists Hilco Capital, which bought the loss-making DIY chain from Australian group Wesfarms in May this year for a nominal price of £1.

Wesfarmers bought Homebase two years ago for £340 million initially planning to turn them into its Bunnings brand but the process was unsuccessful and Wesfarmers ended up writing off £547 million as the revamping programme went wrong.

Homebase is in a similar position like many UK high street retails as it is struggling to attract UK consumers whose appetite to spend money on home improvement has been dampened by Brexit, higher living costs and a softer housing market. At the same time shop owners are also facing rising labour costs, higher property taxes and growing competition from online retailers. Market leader B&Q, for instance, suffered a near double-digit sales loss in the first quarter of this year, as a snap of cold weather added to the already lacklustre consumer interest.

In fact, Homebase will file a company voluntary arrangement, a form of insolvency that makes it possible for the company to change deals with landlords or drop them altogether. This type of contract has been used over the recent months by Mothercare, fashion chain New Look and carpet specialist Carpetright as a way of avoiding insolvency or administration.

Shares in Travis Perkins, owner of the Wickes DIY chain, rose 1.5% and Kingfisher, the owner of B&Q and Screwfix, gained 1.25% on the Homebase news.

Source: Steve Collinge & Insight DIY Team

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09 August 2018

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