Bunnings in the UK is struggling

WHEN Bunnings announced its plans to take over the world, we were all quietly proud. But it’s proving to be a tricky task to win over the Brits.

AUSSIES have a soft spot for Bunnings. Don’t try to deny it. Its big dusty aisles give us a good feeling. You go there to buy a few bits of wood and a box of screws and you come home with sauce stains on yourself but feeling slightly better for the experience.

So when Bunnings announced its plans to take over the world, we were all quietly proud. Wesfarmers - the owner of Bunnings - bought up 250 stores in a UK Hardware chain called Homebase, and began slowly turning them into its Bunnings branded outlets.

It’s like the Ashes. The UK may have brought modern capitalism to this country, but we were going to take it back to them better and beat them at their own game. We were going to take over, one sausage sizzle at a time!

Lots of countries have big global retail brands that they have exported all over the world. Bunnings was going to be ours.

Who doesn’t love a sausage sizzle? Even when it’s freezing! Picture: Mega/news.com.au

ORRIGHT THERE GUVNOR?

Sadly this is turning out more like Gallipoli than the Ashes. The British are in control of our destiny, they don’t give a damn about our Antipodean pluck, and things appear to be quickly turning to custard.

Bunnings’ UK is making losses. In the first four months they owned the Homebase stores, Bunnings claimed to have made £512 million ($A986 million) in revenue, or $246 million a month. In the most recent three-month period it says it made just £276 million in revenue ($457 million) or $152 million a month. That’s 38 per cent lower. Which seems a lot.

Even just comparing the last three months to the same period last year, revenue is down 14 per cent.

Now, most of these stores are not yet operating under the Bunnings brand. They are still Homebase branded on the outside. But Bunnings has changed the way it runs, and those changes look to be about as popular as a termite in a length of hardwood.

MASTERS EFFECT

Wesfarmers says the stores it has changed from Homebase brand to Bunnings brand are going fine.

“Early trading performance of the first eight Bunnings warehouse pilot stores is encouraging,” the CEO said.

But of course, the numbers aren’t separated out so it’s impossible to know exactly how well they are faring. The number of Bunnings stores is also still small — just eight at the end of September.

The Brits showed they were willing to try the first Bunnings concept store in Hertfordshire. Picture: Mega for news.com.au

Bunnings is deliberately going slowly on changing Homebase stores to its own brand, Wesfarmers CEO Richard Goyder said.

“We are looking at how we make sure we prove that concept and we don’t pile capital — that would be the big risk — into something that isn’t going to be as good as it potentially could be,” he said. “We don’t want to make the mistake of going too soon.”

Bunnings UK is acutely aware of what happened to Masters. It went crazy, opening heaps and heaps of big blue stores across Australia. It was only after it had spent hundreds of millions of dollars that it discovered it made a bad call. Eventually, of course, they all shut down.

Bunnings UK wants to avoid the same trap so it is experimenting slowly with the Bunnings brand, trying to get it right for the local market before it spends the money reproducing that model.

That would be a fine plan if the stores it left as Homebase were chugging along, producing loads of revenue. Instead it is turning into a big fat loss-maker. It is stuck with losses on one hand and potentially expensive experiments on the other.

The first Bunnings ads in the UK were pushing the benefits the brand offers, including their tagline ‘lowest prices are just the beginning’.

At the sales announcement on Wednesday, Merril Lynch retail analyst David Errington asked the CEO Richard Goyder whether it could cost them billions in losses.

“Can you guarantee this won’t turn into a black hole? … You can’t afford to lose three or four billion bucks, can you? If you get out of the leases and clean out and cut your losses that’s what it would probably cost … ”

“That’s a huge exaggeration,” the CEO said. “This will take longer than we would have liked but we continue to think there is a significant opportunity for us to grow a business in the UK.”

But he mentioned that, of course, all business has risk.

BUNXIT

It is still too soon to say if Bunnings’ British invasion will be more like William the Conqueror or the embarrassing failure of Roman Emperor Caligula.

Taking retail brands overseas is hard. Even in Australia, a nation open to foreign ideas, there are only a few big imported retail successes such as Ikea and Aldi. And just like us, the UK favours homegrown retail brands.

If Wesfarmers do have to stage a “Bunxit”, it might make sense. The pound has plunged against the Aussie dollar, meaning every penny they earn over there is worth less to Aussie shareholders. The risk-to-return ratio is not quite as sweet as it was when the head honchos made the decision to go over there.

One of the most interesting things about the earnings call was the way the Wesfamers CEO kept referring to “the dark months”. He mentioned it several times, sounding more like a prophetic cast member from Game of Thrones on each repetition. (So far as I can tell, he was talking about the UK Winter.)

He has a point. In the depths of winter in London the sun gets up after 8am and sets before 4pm. In the North of Britain, it’s light even more briefly. That’s a risk to Bunnings. The average Brit is going to be doing a lot less work in their backyard than the average Queenslander.

So maybe Bunnings was never going to work over there anyway. If we’re going to compete with Britain, we should probably stick to things that depend on good weather.

Luckily the cricket is starting soon.