BBC Hardware might have beaten its rivals into the Australian warehouse game but Bunnings boss Joe Boros believes that was the only time a competitor has had the edge.
BBC Hardware might have beaten its rivals into the Australian warehouse game but Bunnings boss Joe Boros believes that was the only time a competitor has had the edge.
Of course, after a $1.2 billion acquisition through last year’s takeover of the Howard Smith group, Bunnings now owns BBC, so Mr Boros has the added advantage of being able to review everything his hardware opponent did.
While the merger will quickly put the Bunnings stamp on its former rival, Mr Boros said the reason Bunnings got ahead, and ultimately won a short but furious struggle, lay in the foundations of each enterprise.
BBC built a giant stand-alone warehouse-style hardware outlet about 18 months before Bunnings.
Both copied the most successful models, largely that of Home Depot in the US. Bunnings also sent up to 50 staff to the US and Europe to record and document this new retail concept. Among other things, their research included taking photographs inside stores, which resulted in more than one confrontation with angry store managers.
But Mr Boros said BBC was structured to capture a good price for its then owner Burns Philp, which was selling the blue sky of the concept when Howard Smith outbid Wes-farmers for the business by $80 million in the mid-1990s.
“They didn’t have time to do proper research and, frankly, probably didn’t care either,” he said.
Mr Boros – WA’s second highest paid executive for 2000-2001, beaten only by his own boss, Wesfarmers chief Michael Chaney – believes Howard Smith never understood the real potential of the BBC business.
Aided by the fact that Bunnings’ results were never detailed outside the divisional reporting of Wesfarmers’ forestry business, Mr Boros said it was only when the bid was made that BBC started to realise the gap in performance.
“I don’t think Howard Smith understood how badly they were operating,” he said.
“They were benchmarking themselves to the traditional hardware business.
“We set new benchmarks for a new business, which were far more aggressive and un-conventional.
“We wanted to create an exceptional business, we did not want to just create big stores.”
The strategy, including the takeover, has proved a boon to Bunnings parent Wesfarmers, helping kick the WA conglomerate to another record profit (announced last week) and setting up expectations of further earnings growth.
As Mr Boros works to complete the takeover of BBC by Bunnings, before bowing out of retail business at the end of the year, he said there had been some surprises when Bunnings took control, both in terms of cost and revenue.
“The acquisition of Howard Smith was through a hostile takeover bid and we did not have the benefit of doing a prior due diligence investigation,” he said.
“It would have been surprising if there were no differences, and the overall goodwill number is a little higher than anticipated.
“On the bright side, we expect that the future synergy benefits will be on the higher end of the range, so I guess it all balances out in the end.”
The irony is that BBC’s return would usually be sufficient to achieve Wesfarmers own internal hurdle rates.
Mr Boros said the difference between the two groups was never clearer than in Victoria where he found, for example, a BBC store turning over $19 million a year while down the road a larger Bunnings store was doing $60 million.
This is one area where the integration is hard – dealing with a culture that doesn’t realise it needs to change, he said.
Mr Boros said this was particularly evident in NSW, where BBC dominated numerically and had not felt threatened by the few Bunnings stores in the State.
“They have seen themselves as market leaders, therefore it is a mind set, which is much harder to get them to understand that things need to be different,” he said.
Bunnings has to deal with several big internal issues, from clearing old stock to altering the merchandising mix and changing the staff culture – ensuring the Bunnings team mentality was accepted.
Then there are other changes, such as relocating premises or closing stores down.
One big cost that has been removed is the information technology employed by BBC.
It was only part way through a five-year program to introduce SAP, which had already cost $20 million.
Mr Boros said he scrapped the program and decided to go with the Bunnings Oracle system, which was relatively cheap to upgrade in comparison.
Otherwise, he said, the integration was going smoothly and would be completed by the end of calendar 2002, leaving three to five years of strong profit growth to be driven out of the combined business, with 10 to 12 new store openings a year.
But Mr Boros said he won’t be there for that next phase and was preparing to step down as the head of Bunnings by the end of the year in favour of his deputy managing director, Peter Davis. It is Mr Davis who has largely overseen the development of the warehouse concept and rolled them out from a Victorian base.
Fifty-seven year old Mr Boros said he had no plans for what would come next other than to confirm that he was not looking for another chief executive’s position, in retailing or anywhere else.
“I have been so time poor for the past 20 years; I want time to think about what I am going to do with the rest of my life,” he said.
p Joe Boros will be speaking at a WA Business News breakfast on Thursday September 26.
