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Wesfarmers wastes $1.6bn


Jerry_Atrick
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I am sure you have all heard that Wesfarmers has squandered $1.6bn of Shareholders funds.. poor shareholders we all say, but if any of us have superannuation, then we probably indirectly have shares in Wesfarmers.

 

But what a total F-UP....

 

I have to admit, I had some rose coloured specs as I was hoping they would create a true Bunnings (as I recall them quite a few years ago) establishment. Good prices, excellent range and decent service (for the type of organisation it is). For some background, I did a stint at Coles Myer at the Tooronga Zoo (their HQ in Tooronga,Melbourne) when there was a mild recession in the 90's and Kmart struggled - which was more to do with how the business was run than any minor recession (Big W and Target had increasing profits).

 

Anyway, back to the discussion. Homebase was put up for sale as a basket case before Westfarmers purchased it. There were three main retail-oriented hardware sellers - B&Q, Homebase and Wyckes - roughly in order of market share in their segments. Although, Wykes were more profitable than Homebase. Homebase had been owned by venture capitalists, Sainsbury's (at the time, a leading supermarket retailer) and then back to venture capitalists before Wesfarmers paid c. $600m for Homebase.

 

I can understand the desire to branch into the UK. There was little growth in the market for a big player and the way to drive growth would be looking further afield. We get it. And, like Australia, the UK is a nation of DIY'ers and also for a long time, a very healthy mum-and-dad set of residential home flippers (buy the house, do it up, sell it at a profit). So, it sort of made sense to look at the offerings in the UK to expand, and let's face it, the retail environment here could use a shot in the arm.

 

Homebase was, as far as I recall, a money losing business - or thereabouts. Prior to Wesfarmers, there were a lot of stores and the venture capitalist owners invested heavily in a store refurbishment program and did they gloat about it. The problem is, when my local store was done, we couldn't ascertain exactly what had been improved. In addition, the poor quality stock (therefore poor quality buyers) and next to useless in store service meant we only went there for the basics (polyfilla, dulux paint, sandpaper, brand tools, etc) and if we needed something more fundamental or some advice, we would make the threk 5 or 6 miles further to B&Q. When we looked at kitchens, Homebase's were, to us, the lowest quality (literally doors hanging off their hinges in showrooms). They also just looked cheap, yet they were in the same price range as their competitors (B&Q/Wykes) who seemed to do better. So, just making stores (or telling us they have made their stores) look better obviously doesn't do the trick. Also, they were more ofteh than not out of stock of what people wanted.

 

Then along come Wesfarmers and Bunnings.. Hooray! Inject some fresh ideas and get some proper Aussie retailing spirit out here.. Wesfarmers paid around $600M (£345m or thereabouts at the time). WTF? This is a basket case and the VC company that owned them must have thought all their Christmases came at once. Not making a profit and probably building up a pension deficit like most other big retailers; losing market share and no signs of shoots of growth. Clearly their due diligence was done in a bar on a beer mat, and maybe with a couple of distractions thrown in. When it's not your money!!!

 

But their strategy - what a pavlova (perlava)? In the time they flushed $1bn down the toilet, how many stores did they convert? I know of two - maybe there were a few more.. The first to were from memory Stevenage and St. Albans - about 5m from each other... And all the time, no improvements in their Homebase stores. Then, I decided to flick the Aussies some cash and look for a few doors online - they stopped selling stuff online. Clearly, they had not taken the time to learn their market - BBQ Sausages in the middle of wintner, which, if the same subjects had the good fortune of standing on the top of Mt Wellington, Tassie in the middle of winter, would be wearing shorts and a T-shirt compared to here - just doesn't cut it - the sausages just don't get warm. Also, the huge traffic jams to get to a store in these areas do not warrant a free 50p (if that) sausage when you use up £5 in fuel and an hour and a half in a traffic jam.

 

I couldn't be bothered going to the Bunnings stores as they were miles from the rest of the country - so I can't personally comment on them. However, one would think if there was going to be a long lead time in revamping all stores business models, the quick win would be to at least clear out the old carp (stock), rejuvinate with better stuff and either train staff to be helpful or replace them (even with EU employment laws, you would be surprised at how easy and cheap it is to do). That is, start turning around the business basics. But no, Homebase stores still limped along as useless as it was before, hemorrhaging cash until it was time to call curtains...

 

The blame is with the tough economic environment in Britain as well as the competitive nature of the market place and god knows what else. The truth is probably more that it was poorly conceived, poorly executed and poorly controlled. And your super is probably poorer for it. The CEO has changed, but other heads have to roll, without the golden handshake.

 

 

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Australian businesses seem to think they can use their Australian business model in the UK without any research in to how things work there. It doesn't seem to work. Slater & Gordon Lawyers even tried. It was a complete failure. They lost millions and their share price is worth nothing & now they have closed most of their branches in regional Australia just to stay afloat.

 

 

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