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Wesfarmers forced to defend Homebase acquisition

Homebase Chepstow

John Gillam has had to defend Wesfarmers expansion into the UK, informing an audience of British Chamber of Commerce executives in Melbourne that there have not been any surprises since the £340m purchase of Homebase in February of this year.

The chief executive of Bunnings Warehouse was very critical of Homebase stating that “out of stock” events were among the worst he had seen globally, but insisted the Homebase business still presented a long-term growth opportunity.

“We are not particularly enamoured with the way it goes to market and it’s not a particularly well positioned business,” Gillam told delegates, “but we don’t think we have paid too much for a poorly positioned business.”

Wesfarmers has recently confirmed that it is planning to rollout the Bunnings Warehouse brand in the UK and Ireland as it perfects its UK strategy, with Mr Gillam confirming plans to open four to six rebranded outlets by June 30 2017.

However, shorty after the acquisition, Wesfarmers announced that a number of trial format stores would be up and running for Summer 2016. They never materialised and a further announcement was made the first Bunnings trial store would be opened in October 2016. This plan has clearly now been put on ice as they struggle to get to grips with what is a deeply unprofitable business.

First Homebase store to be turned into Bunnings in October

With their entire future investment in the UK now hanging on the success of a small number of Bunnings branded trial stores (a brand that UK consumers have never heard of), Wesfarmers simply have to get this right and the stakes are increasing by the day.

Gilliam cautioned investors not to expect rapid results, suggesting to look to the Bunnings growth story in Australia as it built steadily through the mid-1990s.

“We’re not going to be too shaken off our path if we are boring people across the next couple of years because we haven’t got any flash results to show,” he said. “We are generally pretty long-run, long-term focused operators.”

Source: Steve Collinge - MD Insight Retail Group

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28 September 2016

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