Dive Brief:
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Australian conglomerate Wesfarmers last week announced it has agreed to divest its Homebase retail business in the United Kingdom and Ireland to a company associated with Hilco Capital, according to a company press release.
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Hilco will acquire all of the hardware business' assets, including its Homebase brand, freehold property, property leases and inventory, for "a nominal amount," which multiple media outlets report as £1. The company's 24 Bunnings pilot stores will reconvert to the Homebase brand in the process.
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Wesfarmers acquired Homebase from previous owner Home Retail Group in 2016 for £340 million (about $451 million in current exchange conversions). The company is expected to record a loss on disposal of between £200 million and £230 million (roughly $265 million to $305 million). The conglomerate will participate in a value share mechanism in which it would be entitled to 20% of any equity distributions, according to the release.
Dive Insight:
As an investment, Homebase has been largely disappointing, Wesfarmers Managing Director Rob Scott said in a statement regarding the spin off. Scott cited poor execution "compounded by a deterioration in the macro environment and retail sector in the U.K." as reasons the investment went sour. But analysts don't buy it.
"While the Australian company claims that the macro-economic environment and difficult DIY market exacerbated its problems, there can be no doubt that it was its calamitous management decision-making that has led to its embarrassing retreat," GlobalData UK Retail Research Director Patrick O’Brien said in comments emailed to Retail Dive.
Chief among its mistakes was the move to ditch the retailer’s management team, which unwound many of their best moves to differentiate itself, including selling more home goods and making stores more appealing, O’Brien said. Under Wesfarmers, the stores instead became "bargain bin-littered dumps, with hand-written signs," which "alienated the customers Homebase had worked so hard to attract, and they voted with their feet," he said.
"The decision to get rid of all that local knowledge runs completely counter to everything retailers have been saying and doing over the last 10 years – you must know your customer, and adjust your model to fit what they want. Instead, it thought it could impose its model on the UK consumer," O'Brien said.
Wesfarmers also halted planned store closures and piloted stores re-branded as Bunnings, which O’Brien said reflected a misunderstanding of the customer base. "The product mix was such that Wesfarmers must have thought that British people spent most of their time outdoors in enormous gardens cooking on large barbeques," he said. "The Wesfarmers board seemed unaware of the U.K. climate, customer behaviour and living environment, something they would have had a better handle on if someone there had even bothered to watch an episode of Coronation Street."
Although Hilco has a history of stripping assets from acquisitions, the company recently seems to have revived U.K. music retailer HMV, shuttering 141 stores but re-negotiating many leases on the 130 that remain open. On its plate now is reverting the Bunnings banner back to Homebase and wooing back its once-loyal customers.
Scott acknowledged that the past six months have been "particularly" challenging, but that the operating performance of the business is improving under a new management team, which will continue to lead the company's turnaround plan.