How Bunnings is building a UK revolution

Bunnings’ rationale for its Homebase purchase explains the way it’s remaking the group’s operations.

In the next six months Bunnings will establish pilot stores in two or three of the 260 Homebase sites in the UK. Picture: Chris Ratcliffe/Bloomberg News.

The way Bunnings boss John Gillam looks at it, the $690 million Homebase purchase was a right to trade in the UK rather than the simple purchase of a trading business.

The approach tells you something about how Bunnings is going through the process of transferring its operating style into the UK.

It is now three months into the process, led by Bunnings veteran PJ Davis with some ongoing help from his boss John Gillam.

Mike Schneider is in charge of the Australian and New Zealand operations and the plan is to keep the operations separate, with Gillam the only period crossing the borders with both arms running their own races.

The UK team obviously comes from Bunnings and has the job of exporting it to the UK in much the same way that back in 1993 Davis was part of the Bunnings swat team which took the empire to the then McEwans takeover.

In the next six months Bunnings will establish pilot stores in two or three of the 260 Homebase sites in the UK.

The other stores will be in the new model, which means among other things everyday low prices instead of the high-low strategy which has been the hardware mainstay in the UK for a long time.

That’s a big change for the stores, which will continue to run as Homebase stores but without the myriad concessions that now populate its stores.

Bunnings is in the process of undoing the contracts Homebase had with these concession operators.

Among these was Argos, the catalogue based retailer owned by former parent company Home retail group, and a furniture concession.

This process is likely to see an adjustment to the sales base to be used for the acquisition, which will be stated with ongoing starting sales of around $2.4 billion as against the previous stated sales of around $3 billion.

The lower sales base will measure the stores minus Argos and the furniture concession.

The process to be undertaken now is equipping Homebase with the expertise needed to operate as a standalone retailer, with adjustments to distribution centres and the addition of a property team to handle ongoing lease and purchase decisions.

In many respects the time so far has been spent bringing Homebase into line with how the Bunnings team figures it needs to run as an independent operator.

Compared with market leader B&Q, Bunnings in Australia tends to have bigger range of products, fewer house brands and more product authority.

The actual Bunnings rollout will not be set on any public timetable, with the two or three pilot stores to be operating by year’s end, simply to test the model and work out where to make adjustments.

The UK demographics are vastly different, with some18,000 people per square kilometre against just 400 in a large Australian city.

This means delivery is cheaper and explains why catalogue shopping was more popular and why online shopping is more prevalent.

Few UK retailers can however match Bunnings’ own online performance base in interaction, with its website including things like its ‘how to’ videos.

When the rollout starts it won’t be Bunnings running a Homebase store but a replacement store, with Homebase replaced by a Bunnings. And the revolution will have begun.