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.