Friday 25 May 2018

Homebase goes for £1

That is quite a hit, an Australian outfit called Westfarmers buys the place for £340 million two years ago and has now sold it for £1 to Hilco - a group of retail turn-around experts, who can actually turn things around. The total write-down for Westfarmers on the whole farrago is £454 million, so more than the cost of acquisition. Ouch!


So why did it go so wrong for Westfarmers...


1) Business Rates - these are simply rising too quickly on larger premises for either landlords or tenants to maintain margins . Retail operates at 3-5% margin and |Rates are often increasing over this which is pushing up rents, even as occupancy falls across the UK retail space.


2) Amazon - Continues to eat everything that moves, it has lower rates and higher volumes, it is happily eating the whole high street and out of town sector.


3) Housing - UK disposable income has been very tight and doing up your garden or bathroom is only very occasionally a necessity so DIY has had a hard time of it. For the benefit of the nation , it is a long time since all TV was wall to wall property shows.


4) They sacked the management on acquisition and tried to make it like the Australian Bunnings business which put Homebase - aimed at DIY enthusiasts - into a place where instead they had more limited ranges to compete with Wickes. Thus instead of moving the market, they destroyed their margins and business.


I am pretty confident of a turnaround that will save more than 50% of the business.


The usual Company Voluntary Agreement will paste the landlords and deal with point 1. Point 2 is horrid, Point 3 may turn in due course and is about market dynamics (non-food is declining for now) and Point 4 is where the action is and something can be done.


So Hilco have a shot at recovering the business, but the loss of £20 million a month means there is significant risk of closure to much of the business.



20 comments:

PT said...

You missed another point on housing - We're approaching nearly half of all under 40's private renting, meaning they're often unable or unwilling to decorate or improve a landlord's property. So long as a kitchen is functional, it will not be replaced or improved. Likewise bathroom. Gardening will be limited to basic maintenance only. Wouldn't be surprised to see a collapse in pet ownership too, so watch out Pets4Homes!

Bill Quango MP said...

Their work on HMV was excellent. I thought that was the best plan of anyone's back in 2009/10.
It hasn't quite worked. And much of the ideas to transform the business have been abandoned. But it worked well enough to keep them afloat .
Not bad for a DVD and CD shop. When you consider I own no DVD or stand alone blu-ray player. And the car doesn't even have a CD anymore.

CityUnslicker said...

PT - excellent point!

Nick Drew said...

Housing:

On PT's point: much of the BTL sector does (or did) plan to renovate kitchens etc every few years (e.g. those getting the LA to put tenants in: the LA will typically insist on a new kitchen/bathroom every time) - but they get a very basic lightning job done by specialist jobbing builders, who certainly don't shop @ Homebase

(and they only ever use white paint ...)

Naively, I always assumed DIY was counter-cyclical with housing, i.e. if you couldn't afford to move, you'd do up your existing place instead

but in fact, it turns out the vast preponderance of DIY is done when people first move in

Charlie said...

A contrarian view...

With the BTL sector projected to shrink due to long-overdue changes to the way it's taxed, could we be about to see a large rotation of FTBs out of private rented accommodation into ex-BTL properties that are mostly doer-uppers, having been neglected for years?

In which case, the timing of this sale could well be Brownian.

Nick Drew said...

we like contrarian views, Charlie - keep 'em coming!

dearieme said...

Poor old Ozzies. It's reminiscent of the dim belief that occasionally afflicts UK retailers that it would be a jolly good idea to expand into the USA. Their cricket team is rubbish at the moment too though it's hardly the time to crow about it.

Electro-Kevin said...

Snowflakes don't do DIY.

My Dad had me swinging a sledgehammer and using real power tools from a very young age. Climbing up on roof ladders, ripping out and refitting bathrooms at 16...

My lads, on the other hand. It was more hassle than it was worth trying to get them to help so I renovated our house on my own - computers all consuming.

There are better suppliers than Homebase. I prefer B&Q and Screwfix anyway - so more than just internet competition.

Raedwald said...

Under-40s and skills - deeply worrying. Can't use hand tools, can't mix concrete with a shovel, can't even use a garden spade and fork, can't wire a plug or change a tap washer and many can't even hold a hammer. But good for the trades, I guess.

The bodge trade is doing well - patching up auction-sale BTLs but the sources of dirt-cheap and consequently piss-poor materials (doors, tiles, sanitaryware, electrics) such as Wickes or TLC electrical (London and SE) is pretty obvious. I can spot a Wickes fence panel (economic life 8 months) from 4 gardens away.

Screwfix has developed a very fine business model that combines low-cost store locations in the scruffier industrial / warehousing parts with a first rate web presence and courier use that pushes the limits - kit ordered for delivery to my Austrian farmhouse arrives within 5 days, delivery of orders over £50 to EU is free and the stock for free courier delivery includes big stuff such as radiators. I hope they've got a Brexit strategy.

Electro-Kevin said...
This comment has been removed by the author.
Electro-Kevin said...

Homebase for a £1 ?

I was mugged. I just paid £25 for a tin of paint when I could have bought the whole chain of shops for a quid and then flogged everything (apart from the paint I wanted) on ebay !

dearieme said...

We find it almost impossible to remember which Big Box outfit is which. A month ago we bought a garden chair. From which? Neither of us can remember. Even geography is no help because they are all strung out along the same road.

Anonymous said...

I gave up Amazon a couple of years ago and now use eBay instead, it's rarely that I can't get a deal at least as good as Amazon. Yet no one says ebay is killing the High Street (in fact a fair chunk of my purchases are from small independent shops).

What's the appeal of Amazon? Prime?

(example - I'm currently after a 4g wifi hotspot box for when we rent a place sans wifi - buy a few gig of data for the fortnight. Ebay is cheaper than Amazon for such things)

Charlie said...

"What's the appeal of Amazon? Prime?"

Yes. Prime is brilliant. I've had stuff turn up within a coupe of hours of ordering.

I also save time using Amazon. I know I'm not always getting quite the best price, but they're always there or thereabouts. I'd rather spend an extra pound or two than trawl the internet for quarter of an hour looking for the absolute cheapest deal. Find thing you need - swipe right. Thing is delivered to your door within 24 hours. That is some offering.

Charlie said...

Oh - and returns. Half the time, they don't even want the stuff back. The rest of the time, you don't even need to stick a label on it. Take thing to local shop, show QR code on phone.

btw I'm not on commission...

Anonymous said...

I used to get lots of household stuff from Homebase then I had an IKEA phase (cheap and functional), then went back to Homebase but none of the things I wanted were stocked any more. I only made the connection between this and the takeover just now...

Not sure why people pay for Amazon Prime, you can get a month for free every year (more if you have multiple accounts), and why are people so impatient for things to arrive so quickly?

As mentioned the thing about Amazon is the returns, you can make up any reason whatsoever and they don't care. If you are willing to give up on your morals, any item which is too cheap for processing a return to be worthwhile is "free" from Amazon.

Also you can get Amazon gift cards for anything up to 20% off, but usually around 5% off, from time to time - buy them on ebay and watch for supermarket promotions (dried up in the last few months though). Unlike high street/retail park gift cards vouchers last for 10 years, plus you don't have to worry about losing them once entered into an Amazon account.

The problem with ebay is that sellers are variable. Even though ebay always sides with the buyer unless it's extremely obvious the buyer is lying.

James Higham said...

A cautionary tale.

roym said...

@PT number of pets is indeed declining https://www.statista.com/statistics/308229/estimated-pet-population-in-the-united-kingdom-uk/

Bill Quango MP said...

Amazon prime is the best of the TV package deals.

Assuming you order two items a month, you save £6-£15 postage. This means you are getting your top rated tv for free.

Anonymous said...

BQ - I'm an inveterate non-TV watcher, only sitting in front of the box for rugby, cricket and the odd soccer game. A lot of ebay stuff is free postage, but it's true there's rarely a next day option.

Now that most of the good stuff's gone to Sky/BT I've installed AcePlayer (Sodastream will also work) - a quick look at Reddit Soccerstreams for a feed and you can watch most stuff with a minute or two's delay.

A tragedy to use good bandwidth for TV, but that's cos I remember the Netscape days with a 9600 bit modem.

Aceplayer is a Russian (afaik) tweak of the well known VLC media player, I don't know if my browsing is available to FSB HQ, but I know for a fact it's available to GCHQ, as is everyone else's unless you have a VPN (and that VPN is actually secure).