This time last year Homebase had just reported a £114.5m loss following several bad decisions by its former owner Wesfarmers.
Wesfarmers cut its losses and private equity firm Hilco snapped up the home and DIY retailer for just £1 in 2018, with the business appearing to be on its last legs.
Since then, Homebase has launched a CVA closing 42 stores, acquired specialist retailer Bathstore and been put under the magnifying glass by chief executive Damian McGloughlin as part of an aggressive turnaround plan.
A year later, Homebase has delivered an impressive transformation, posting a £3.2m return to profit and a 2.6% uptick in like-for-like sales during the year to December 29, 2019.
How has Homebase managed such an impressive turnaround when its rivals continue to struggle?
Bold changes
McGloughlin explains that he took several measures to turn the struggling retailer around, putting a big focus back on its customers and simplifying the business, including stripping out some of the “leadership layers”.
“We’ve introduced new ranges and because we’re privately owned we have total autonomy, therefore we can be fast and agile,” he says.
Homebase chief financial officer Andy Coleman adds: “In a turnaround, it’s really important that customers and team members see bold, meaningful, transformational changes to ranges, offer and how they shop.”
During the last financial year, Homebase invested £10m in its stores up and down the country, including 51 refurbishments last December to create new showrooms, Bathstore concessions and home furnishing departments to entice customers back.
“In a turnaround, it’s really important that customers and team members see bold, meaningful, transformational changes”
Andy Coleman, Homebase
“The retailers that aren’t getting it right are drowning themselves with too many small incremental improvement projects, which take just as much time as something really big, but are completely invisible to team members and customers,” Coleman says.
“What I think Damian and the team have done brilliantly here is focus on stuff that team members, customers and suppliers can see every day and every week get better and better.”
McGloughlin adds: “The areas we have touched – like Bathstore, the bedrooms, the kitchens – are showing the potential that is there for customers, and it’s given us a good return.”
McGloughlin and Coleman have also concentrated on getting staff trained to a higher standard to offer customers a better level of service.
“Training our team is what Andy and I believe in. Getting the right people to deliver and service our customer,” McGloughlin explains.
Facing challenges
But it hasn’t all been plain sailing for the DIY giant.
Despite rethinking its ranges, McGloughlin says Homebase faced a struggle in trying to shift historic stock that wasn’t right for its customers.
GlobalData analyst Matt Walton says Homebase would have had to reverse every decision previous owner Wesfarmers made when it rebranded the stores as Bunnings – stocking things like barbecues all year round.
This is something Walton says other retailers can take big learnings from. “You need to know what the local market is like, and don’t assume because it works in one market it will work in another.”
Aside from that, Homebase had to close 42 stores as part of its CVA agreement. “We had the unfortunate but necessary closures of stores, but some were in clearance at the same time,” McGloughlin explains.
“That was a confusing message to the customer, so we had to do a really good job of communicating to them about the new ranges coming.”
Despite all this, due to its “strong financial performance” Homebase has been able to conclude the CVA process 18 months earlier than planned.
The future
Alongside its results, the home and DIY retailer unveiled a new store format to be rolled out at Easter.
Two of the standalone Bathstores – in Cheadle and Sutton – have been transformed into a new store format, ‘Decorate by Homebase’.
The new format will stock smaller items used for decorating, but with the option to order from the full range digitally for home delivery or pick-up from a nearby larger store.
Walton says the new smaller format is a great idea for Homebase. “It can focus more on the planning and decorative side of DIY, and will give Homebase access to locations it couldn’t get to before,” he says.
“During the Wesfarmers situation, [B&Q] should have been doing better but it didn’t materialise. The GoodHome offer has been bumpy”
Matt Walton, GlobalData
Although rival B&Q has opened similar formats in the guise of its ‘GoodHome’ stores, Walton says the Kingfisher-owned retailer should be “concerned”.
“During the Wesfarmers situation, [B&Q] should have been doing better but it didn’t materialise. The GoodHome offer has been bumpy and they’ve had a lot of upheaval within Kingfisher,” he says.
Walton says that as Homebase goes back to what it was known for pre-Bunnings and focuses on the decorative, softer side of DIY, it gives them an “established offer” that even the likes of Wickes can’t compete with.
With DIY veteran McGloughlin at the helm and a strong team around him, Homebase will be going into its peak trading period one step ahead of the rest.
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