Bunnings boss denies Homebase like Masters
Bunnings chief John Gillam has launched a strident defence of his firm’s purchase of British retailer Homebase.
Bunnings chief John Gillam has launched a strident defence of his firm’s purchase of British retailer Homebase, declaring it a “wonderful growth opportunity” as the group tapped a former rival to help guide its British expansion.
The upbeat commentary follows a recent report from Bank of America Merrill Lynch analyst David Errington that slammed the $658 million Homebase buy as a decision akin to Woolworths’ calamitous home improvement foray.
Mr Gillam joined in a fiery exchange with Mr Errington at a Wesfarmers investor day in Sydney yesterday, with claims and counterclaims on the similarities to Masters.
Mr Gillam alleged the BAML report was based partly on “seriously wrong” numbers, while assuring investors the firm had ring-fenced its Australian operations to ensure there would be no distractions to its home market.
“There’s not a change in plans for Australia and New Zealand,” he insisted.
“It won’t go backwards.”
The claims failed to convince Mr Errington, who claimed the same bluster emerged from Woolworths when it spruiked its Masters opportunity. Woolworths ultimately lost focus on its core grocery business as it sought to challenge bitter rival Wesfarmers in home improvement.
In the eyes of Mr Gillam, the difference lies in the starting point. Wesfarmers will begin with a store and supplier base as well as a business that has proven it can turn a profit. The controversy threatened to overshadow a largely optimistic presentation that emphasised the progress made in the first four months of Homebase ownership.
“Our acquisition has been validated in terms of guidance provided,” Mr Gillam said.
“We can see all the things that attracted us to it. We see the capability of a business that … can be the lowest-cost operator.”
Wesfarmers boss Richard Goyder has previously stated an aim for return on capital of 18 per cent within five years.
The affirmation of Homebase as a “good bet” came despite the firm again admitting its new subsidiary was wilting when it announced the acquisition in January.
“It was not a well-run business. It’s had a decade of poor management,” Mr Gillam said.
The conglomerate is planning to slowly switch the Homebase brand into the Bunnings Warehouse brand, although it will first look to pick the low-hanging fruit at existing operations while trialling Bunnings.
“Homebase currently can’t do what Bunnings Warehouse does. So if we stay with Homebase we have a lid on how much we can grow,” the Bunnings chief said.
Mr Gillam was careful to address concerns it could become a costly learning experience, saying plans to invest $1 billion in Britain hinged on the success of the trial of Bunnings Warehouse stores later this year.
“If the pilots don’t work we don’t invest,” he said.
The company hopes an advisory team dominated by experts in British retail will help it avoid Masters’ fate, and one of the consultants it has called upon is former Masters boss Matt Tyson.
Mr Gillam admitted Mr Tyson was an “interesting choice”.
However, he said his 20 years at Europe’s largest home improvement retailer Kingfisher and his knowledge as a competitor made him a valuable addition.
“Maybe he understands things we don’t understand about ourselves,” he said.
“He’s also a very, very well-credentialled UK retailer.”
The advisory team includes ‘‘turnaround king’’ Archie Norman and former McKinsey executive Michael Mire.