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We cleared out Homebase management too quickly, confesses parent company's new CEO

The new CEO of Bunnings and Homebase parent company Wesfarmers has confessed to shareholders that the company had made a mistake by changing the Homebase management team and product ranges too quickly when it took over the UK chain last year.


Bunnings' UK and Ireland (BUKI) has reported losses of Aus$89 million (£50 million) in 2017, compared to Homebase earnings of $52 (£29.7 million) in 2015, with sales falling 17.5% in the September quarter. Analysts estimate that sales have gone backwards by 20% since the Homebase acquisition.


Scott (pictured right) said he expected the losses to increase through 2018 as trading remained challenging for Homebase during the continuing conversion of stores to the Bunnings format.


However, sales in the most-recently converted stores were doing well and he was considering accelerating the conversion, although he wanted to see how the new-format stores traded during the “dark months” of the British winter before investing more capital.


 “Our focus is on strengthening the management team to support the transformation and instilling stronger execution across the business. The establishment of Bunnings in the UK will take time and we will be disciplined with how we invest further capital,” he said.


The the parent company has said it recognises the UK market will be a difficult nut to crack in the current financial climate.


Scott is resisting pressure from investors to spin off Bunnings, which generates 30% of group earnings but is estimated to be worth $23 billion (£13 billion), or almost half of Wesfarmers' $48 billion (£27.3 billion) market value


But he conceded that Bunnings' expansion into the UK and Ireland through the $700 million (£360 million) acquisition of Homebase in January 2016 had been disappointing, and a change in tack was needed to restore sales growth and profits.


"Clearly it's not performing as well as we would like," he said.


Scott warned that losses would increase this year as trading deteriorated at Homebase stores and costs were increasing.


While he believed the Bunnings format would eventually resonate with British customers, he confessed that Bunnings had erred by removing most of Homebase's existing management team and changing its offer, including the product range and prices, too quickly.


“We relied too heavily on the Bunnings team and we exited virtually all the local team," he said.


“In hindsight, the team probably moved too quickly to change Homebase and made a lot of changes to clean out a lot of the concessions and clean the stores up with a view towards converting to Bunnings,” Mr Scott said. “But unfortunately we didn't replace those concessions with product and offers that were compelling enough to get customers in the door."


Wesfarmers has strengthened the BUKI management team over the past few months, appointing former B&Q operations director Damian McGloughlin, as COO and former Officeworks chief operating officer David Haydon(left), who has also held senior roles at B&Q and Wickes,  as Homebase's managing director. There are also new merchants and regional managers.


 “It really resonates with customers, and community engagement is very strong, and that gives us confidence the Bunnings offer will resonate in the UK and will be profitable in the UK,” Scott said. “The challenge is that the faster we convert the stores, the more disruption we cause and the more challenging the short-term performance will be.”

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