The chairman of the Australian owners of Homebase is flying to the UK for a whistlestop tour of its stores this week as the future of the struggling DIY chain hangs in the balance.
The Wesfarmers chairman, Michael Chaney, is being accompanied on store visits by Archie Norman, the retail turnaround expert who chairs Marks & Spencer and advises the Australian group.
In February, Wesfarmers said it was considering quitting the UK after losses spiralled at Homebase which has more than 200 stores and 12,000 staff. Customers had dwindled after the new owners stripped out home furnishings ranges and turned some stores into outposts of Bunnings, its successful DIY brand in Australia.
Perth-based Wesfarmers bought Homebase for £340m two years ago but the botched takeover saw the unravelling retailer lose close to £100m in the last six months of 2017.
The Australian firm had intended to spend £500m over several years to turn Homebase into a British version of Bunnings, which is famous for low prices and “sausage sizzles”.
The Wesfarmers chief executive, Rob Scott, told investors in February that “all options are open” as it wrote off A$1bn (£547m) in the deal.
“There’s value in this network and we want to make sure that we reduce the trading losses and hopefully put the business on to a path to profitability,” said Scott.
Norman is said to have counselled Wesfarmers against buying Homebase, arguing it would not be a transformational deal for what is one of Australia’s biggest companies. Homebase would be hard to integrate with the existing Bunnings chain, which has larger stores and a different product range, he argued.
Wesfarmers is now said to be working with investment bankers at Lazard to review options for Homebase. Norman, who also chairs Lazard’s London operation, declined to comment.
Wesfarmers is saddled with Homebase’s £1bn rent bill over the length of its leases and has already said it could close up to 40 of the worst-performing stores. A handful of disposals have taken place so far.
A new management team, led by former B&Q executive Damian McGloughlin, has set about rejigging its product range to once again appeal to British shoppers. It has dropped the “lowest prices are just the beginning” advertising strapline and introduced “your home improvement and garden centre”.
Given the tough choices faced by Wesfarmers, private equity firms, including Hilco, Endless and Lion Capital, are said to be circling the business. Another name being linked to a possible deal is the discount chain B&M. It is unclear whether any bid would be for the whole of Homebase or, in B&M’s case, a parcel of stores.
Homebase’s troubles have added to the gloom engulfing the British high street following a spate of restructuring and refinancing deals. In recent weeks, fashion chain New Look has used a company voluntary arrangement (CVA) to close 60 stores and renegotiate rents.
Flooring retailer Carpetright is exploring a similar restructuring strategy that could lead to the closure of up to a quarter of its stores, while Mothercare is rumoured to be considering a CVA to speed up the closure of about a third of its 143 stores. The baby goods specialist is already locked in talks with lenders that are expected to conclude by the end of next month. It is also seeking additional financing to fund its improvement plans.
