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Homebase
Homebase - operational review
Homebase is positioning itself as the UK’s leading
home enhancement retailer.
Successful trading strategy. Following a
step-up in promotional activity in the prior year, Homebase
successfully reverted to its previous levels of promotions.
This, together with improved stock management and the continued
benefit from supply chain initiatives, resulted in gross margins
being strongly ahead in the year. Good execution of this trading
strategy and margin management was a key operational highlight
given a further year of challenging market conditions.
New space improving reach and product offering.
Homebase opened 17 new stores and closed 4 (including two store
relocations), bringing the total number of stores to 310. The
majority of the new stores were of a smaller store format and
in new catchments. As a result of the opening programme since
acquisition, Homebase now has 10% of its portfolio in a smaller
store format (around 20,000 sq feet internal ground floor sales
area, typically with an 8,000 square foot mezzanine and an 8,000
square foot garden centre). These smaller stores are able to
offer an authoritative range across the broader home enhancement
categories, and are often the only national retailer in smaller
catchments such as market towns for categories including core
DIY, garden and showroom.
Mezzanine floors in over half the store portfolio.
There are 165 mezzanines, with 7 of the 21 increase in the year
coming from existing store conversions and the balance from
new store openings. The latest mezzanine floors continue to
reinforce the Homebase brand as a destination for kitchens,
bathrooms and furniture which are typically displayed on the
mezzanine, while creating an improved environment for retailing
homewares, furnishings and accessories on the ground floor space
beneath. Most new stores will continue to be opened with a mezzanine,
with a limited number of existing stores remaining to be converted.
Latest format roll out trials progressing to plan.
Trials are in place to evaluate rolling out the proven home
enhancement offering throughout the Homebase chain. The opportunity
remains to provide a comprehensive and compelling set of merchandise
ranges in a more consistent manner throughout the store portfolio.
Around one-third of the portfolio has received minimal or no
store refurbishment investment for a number of years. As a result,
only around half of the store portfolio carries a comprehensive
display of the Homebase kitchen range and a similar number of
stores have a significant Furniture Extra display in place.
Initial trials began in late 2006 to review how best to reconfigure
space for additional ranges and improve customer perception
in these stores. These trials will be fully evaluated after
Homebase’s key selling months in the first half of the
current financial year.
Differentiation through broader home enhancement offer.
Homebase’s enhanced and extended home furnishing offer
continues to successfully differentiate it from the competition.
The ‘big book of furnishings’ trial, which has been
extended to 100 stores, now has 1,700 of the Furniture Extra
products and a further 1,300 other home enhancement products
across a total 276 pages. As well as products that are cutting
edge and new stylish designs, there are also ‘Smart Buy’
design-led lines offering value for money and ‘WOW’
deals that offer great value at low prices. The initiative is
a further example of leveraging the existing Group sourcing
and supply chain skills.
The Homebase Ideas magazine reinforces its style-led home enhancement
ranges. With a circulation of over 400,000, it is one of the
UK’s top consumer magazines and it extended its leadership
of the ‘home interests’ category in the latest ABC
circulation figures.
New product ranges. A further 50 range reviews
have been completed in the last year. These have included homewares
and furnishings, horticulture and core DIY and decorating categories.
One of the most recent launches has been a new own brand paint
range – ‘Flawless’ – which has been
specially formulated for ease of application, coverage, durability
and consistent finish. The range will help Homebase gain additional
market share in a core category that represents an £800m
market. It will give further authority alongside the leading
Dulux and Crown brands, together with specialist paint ranges
from Farrow & Ball, Fired Earth and Laura Ashley, as well
as a broad offer of other Homebase own-brands.
Kitchen installation trial progressing well.
Approximately one-third of the store base now offers a full
kitchen installation service to customers, helping to capture
additional orders from those customers seeking installation
and also supporting the sale of higher priced ranges and accessories.
Opportunity remains to roll out further to more stores and potentially
to other product categories.
Leveraging multi-channel skills, scale and infrastructure.
Furniture has been a strong sales category during the year,
enabled by the shared supply chain and home delivery infrastructure.
Visits to www.homebase.co.uk
have also risen strongly; the website is now the third most
popular in the ‘house and garden’ category according
to the Hitwise 2006 UK Annual Online Performance Awards. Further
products are being added in order to better reflect the in-store
ranges and allow customers to research individual products or
ranges. Recent additions also include virtual bathroom and kitchen
brochures.
Further operational improvements. Rationalising
the many ways that different stores approach a process into
the single most efficient way began with the ‘Homebase
Way’ programme launched in 2003 and has continued in the
latest ‘300 to 1’ store operations consistency programme.
As part of this, store management teams were restructured during
the year to reflect a clear focus on delivering sales through
better customer service, the wider product range that Homebase
now sells and improved systems and processes.
Operational improvements leading to positive employee
feedback. In the 2007 all-employee opinion survey,
60 out of 64 measures improved on the year before. The level
of overall employee engagement has risen from less than 20%
in the first survey in 2003 to over 59% in the latest survey;
this is a score double that of a UK benchmark of other comparable
organisations.
Homebase - financial review
Sales in the 52 weeks to 3 March 2007 increased by 2.2% in
total; like-for-like sales declined 1.4%. Sales of furniture
and kitchens were strong over the year, while core DIY and decorating
ranges were weak particularly in the first half. There were
good performances in seasonal categories at relevant selling
times during the year, including air conditioning, horticulture
and garden maintenance.
The contribution to sales growth from net new space was 3.6%.
In the new financial year, while Homebase still expects to open
a similar number of new stores, the contribution to sales growth
is expected to be between 2% and 3% as a result of the planned
size and phasing of store openings.
Gross margin was ahead by approximately 200 basis points in
the first half of the year as a result of a reduced level of
promotional activity together with the benefits from supply
chain initiatives. This continued in the second half, together
with improved stock management. As a result, gross margin for
the full year was ahead by approximately 300 basis points.
Benchmark operating profit for the 52 weeks to 3 March 2007
grew 4% to £53.4m. In total, operating costs grew 9% in
the year. Underlying cost inflation continued to be approximately
4%, with the remaining 5% being driven by additional investment
in new space, together with the costs of strategic and operational
initiatives.
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