Features Australia

Letter from Penge

16 June 2018

9:00 AM

16 June 2018

9:00 AM

Australia is now unwittingly linked even more closely with the dreary outer-London suburb of Penge. Not only was it the locale of popular British comedy show Hancock’s Half Hour where the ill-fated British comedian Tony Hancock told us about life at Railway Cuttings before committing suicide in Sydney. Penge’s latest suicide victim, this time of a commercial nature, is Bunnings, whose Penge Do-It-Yourself warehouse, along with the remaining 23 Bunnings conversions of the 250 Homebase DIY chain acquired in Bunnings’ British disaster, will soon cease being Bunnings. Their $700 million purchase, on which it planned to spend $1 billion converting the stores to the Australian warehouse style, has been sold for $1. So ends the great experiment of transplanting the super-successful Aussie chain to Britain where Wesfarmers had forecast it would return 18 per cent on capital within three to five years. Instead, down the gurgler goes well over a billion dollars of shareholders’ funds.

Describing ‘the botched Australian acquisition of Homebase as one of the most disastrous ever retail takeovers in the UK’, the British media quoted Retail Economics analyst Robert Lim blaming the failure of ‘Wesfarmers’ attempts to disrupt the UK DIY market…[on] a series of woeful management decisions, clumsy execution and a misguided perception of the UK market’. With its marketing push reliant on the tried and true Australian catch-cry ‘Where lower prices are just the beginning’, it took until recently for the new management (after the Australian geniuses had all gone) to recognise that something was missing in a market that did not know the name Bunnings: lower prices of what? So in the last Bunnings conversion the slogan was replaced with ‘Your home improvement and garden centre’; an admission that cutting and pasting the Aussie model hadn’t worked.


Bunnings has readily admitted to self-induced wounds by making mistakes like axing the entire Homebase senior staff that had at least partially offset falling DIY performance by introducing revenue-providing concession home furnishing outlets like Laura Ashley that brought in potential customers, particularly women. Despite the original strategy of leaving Homebase and the concessions alone and collecting the modest profits involved until the ‘pilot’ Bunnings conversions showed what worked for UK customers, the expatriate Bunnings Blunderers jettisoned the large home furnishings business without replacing the income — and alienating the female shoppers the concessions had attracted. It took two years for the chairman to acknowledge at last November’s AGM that they still needed to ‘get a handle on how to roll-out these [conversions to Bunnings] stores — what sort of format, how different geographic and social economic areas vary and how seasonality affects us’.

Two and a half years ago when Wesfarmers cheekily announced the Bunnings DYI invasion of Britain on the same day that Woolworths abandoned its multi-billion attempt to compete in the local DYI through the Masters disaster, this column’s warnings of trouble ahead went unheeded. ‘How significant for Bunnings is it that the British live in terraces or semi-detacheds while Australians prefer bungalows on quarter-acre blocks?…Does this make the British DIY/hardware market different?… How accurate are the British investment analysts who explain the fall in UK DIY sales but booming business in stores aimed at tradesmen as a trend away from DIY to “Do it for me”, (reflecting more landlords and renters than in Australia)’. As I then pointed out, Homebase, with about one-eighth of the UK market had been in decline for years, with an 80 per cent slump in profits over the preceding decade and widespread store closures in a very tough retail environment with profit margins of all the key players being a fraction of what Bunnings would need to match its Australian performance. But Bunnings, curiously, saw ‘an attractive and growing market for the British home improvement business with Homebase providing established stores of the right size to support warehouse marketing at a low operating cost’. Arrogance mixed with incompetence? Lower prices turned out to be not simply the beginning, but the beginning of the end.

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