It's only ever been about a point of difference

Ok, so the news of Bunnings imminent arrival in the UK is now starting to sink in and retailers and suppliers alike are gradually (or should be) starting to think through the numerous implications of this new entrant to the UK Home Improvement Market.

As we've said before, the introduction of Bunnings will be a breath of fresh air, giving the UK market a much needed boost, leading to wide ranging benefits to both consumers and suppliers alike. That’s even before you consider the staff at Homebase, who must be relieved and excited by the opportunities that Bunnings will be able to offer them.

An aggressive new market entrant will also shake up the competitive landscape and have everyone from B&Q to Topps Tiles looking over their shoulders and questioning how well they are really looking after their customers.

However, when you start to think through this acquisition in a little more detail, we can’t help but think the transition from Homebase to Bunnings is not going to be that straight-forward.

Who are we to question Wesfarmers executives and their strategy? After all, they have confirmed that this was no snap decision, made on the hoof, as a result of a cold call from John Walden who was keen to off-load Homebase  in order to ‘seal the deal’ with Sainsbury’s.

On the contrary Wesfarmers MD Richard Guyder told us quite clearly that:-

“The Bunnings team has done a lot of work to make sure it understands the market and the opportunity, including having visited hundreds of stores, spending significant time researching the market and closely studying international retail expansions into the UK and other markets. Detailed due diligence has been completed and implementation and improvement planning is well advanced.”         

if you missed the full statement from Richard Guyder, click here

We get all that and of course, when you’re planning to spend £340m, the background work will certainly have been done. However, having read the 49 page Wesfarmers document titled ‘Agreement to acquire UK home improvement and garden retailer Homebase’, we’re still left with a number of fundamental unanswered questions.

If you want to read the presentation click here.

Bunnings is without doubt a very successful retailer. Don’t take our word for it, look at their financial results, showing year on year sales and EBITDA growth. But how has this been achieved? Well, we can only go on what is stated in their annual report, but it appears that this has been achieved with a solid combination of ‘Every day lowest prices, widest range, world leading brands, a combined consumer and trade focus and best service’.

Ok, so some of you are already one step ahead and yes, you guessed it, this is exactly the same strategy as B&Q.

When you add in that the Bunnings store staff uniforms, the store racking, the store categorisation, POS and even their strapline ‘Lowest prices are just the beginning’ are pretty much identical to B&Q, you can see the point we’re trying to make. 

Assuming that Bunnings want to avoid launching a total clone of B&Q into the UK market, they will have to materially change their strategy and the look and feel of the stores that have been fundamentally responsible for their success in the first place. I’m not even kidding, I could show you two pictures, one inside a Bunnings Warehouse in Melbourne and one inside a B&Q Warehouse in Manchester and even those of us who have lived and breathed this industry for the last 20+ years, would find it hard to tell the difference.

Surely retail has always been about delivering a discernable point of difference to consumers. You simply can't come over here with your big BBQ's and your outdoor kitchens (whatever that is) and hope people are going to be queuing up outside your stores on a rainy Saturday afternoon in March, if you're not giving them a good reason to be there.

So how do they get around this challenge? Surely the strategy that has delivered them the success to date, will have to be changed when they enter the UK market, unless they're keen to be seen as a B&Q with slightly better customer service.

Well, I think we may have the answers and it’s down to creating a distinct point of difference and here are our suggestions:-

1. Don’t try and be the cheapest, it won’t work, as Kingfisher's economies of scale will deliver them cheaper prices every day of the week. Maybe just go for a combination of high-low promotional activity instead – UK consumers always love a good deal!

2. Don’t focus on world leading brands as those can most easily be price compared against B&Q and online competitors (refer to point 1). Instead, get yourself some really nice exclusive brands. I've heard that Sainsburys might have a few they won’t be using like Habitat and Hygena.

3. The Homebase stores you’re buying aren’t that big anyway, so you won’t be able to offer widest range.

4. Maybe focus on gardening with some nice fancy homewares, B&Q are a bit rubbish at those categories.

5. 1. Don’t use a red logo in the UK, maybe go for light green and white with a splash of orange, that’ll stand out nicely.

Oh dear, I think I've just described Homebase...

Source: Steve Collinge - MD - Insight Retail Group Ltd.