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Update: Homebase to close around 80 stores by 2018

14:42 22 October 2014

Homebase is to cut its estate of stores by around 25% over the next four years.

Homebase is to cut its estate of stores by around 25% over the next four years.

DIY chain Homebase is to close a quarter of its stores and has ditched its boss after a review by parent company Home Retail Group found failings in its sales performance.

Home Retail, which also owns Argos, said the number of stores would fall by around 25% from 323 this year, a loss of about 80 outlets in the period up to early 2018. It is already shutting 30 in the current financial year.

A review was launched as the threat of online rivals and the rise of a generation “less skilled in DIY projects” threatened a sector already squeezed by the economic downturn over the last few years.

It found Homebase was saddled with “inconsistent store operating standards” as well as “a large estate with low sales densities that result in a challenged financial model”.

A shake-up will aim to improve product availability and presentation and instil “a culture of both efficiency and great customer service in stores” and will also see it take advantage of online technology developed by Argos.

The announcement came as the group’s half-year results showed that although sales and profits were rising at Homebase, earnings growth was lagging behind that of Argos – itself undergoing a shake-up – where they soared by 57%.

Group chief executive John Walden said Homebase would launch a three-year plan “to improve the productivity of its store estate, strengthen its propositions and accelerate digital capabilities”.

“This will position Homebase as a smaller but stronger business, ready for investment and growth,” said Mr Walden.

The group said: “Following the completion of the Homebase business review, Paul Loft, managing director of Homebase, and the group have agreed that now would be an appropriate time for Paul to step down from his role.”

Details of the store closures emerged as the group reported a 13% rise in its headline “benchmark” pre-tax profit to £30.9million for the half-year to August 30. Benchmark operating profit grew by 2% to £27.8m.

However reported pre-tax profit fell 5% to £13.5m after taking into account costs of a plan to transform Argos plus the effect on the bottom line of property provisions and currency movements.

Group sales increased by 3% to £2.67billion, with like-for-like sales up 2.9% at Argos and 4.1% at Homebase.

Argos saw sales from mobile and tablet devices rise by 45% as its benchmark operating profit soared by 57% to £12 million.

Homebase was boosted by a strong performance from seasonal products in the first quarter during the spring, while “big ticket” items such as fitted kitchens and bathrooms also did well though other categories were flat.

Mr Walden, the former Argos boss who was promoted to lead Home Retail after long-serving chief executive Terry Duddy stepped down earlier this year, said the group had performed well.

“Argos continued to build on its sales growth from the previous financial year, increased its benchmark operating profit, whilst also making good progress with its transformation plan.

“Homebase delivered a good peak trading period, performing well throughout the half despite being up against the tough comparators of a strong second quarter last year.

“At this mid-way point in our financial year, we continue to expect to deliver full-year benchmark profit before tax in line with current market expectations.

“However, as always the full-year outcome will depend upon the important Argos Christmas trading period.”

The announcement of closures spells an uncertain future for staff at Homebase, which in March employed nearly 18,000 people.

The chain includes 10 stores across Suffolk and north Essex but today’s announcement did not identify any of the sites facing closure.

Home Retail Group said affected employees would be the first to know and it would where possible redeploy them to elsewhere in the group, or ask businesses taking over its sites to find roles for them.

A spokesman said: “Home Retail Group has announced a three-year plan for Homebase to revitalise the business for the future.

“Part of the plan will be to right-size the store estate through scheduled lease expiries and a series of sales to other retailers.

“Once they are identified, our colleagues will be the first to be informed about any of the affected stores, and where possible we will redeploy colleagues to other stores within the group, or encourage retailers buying our leases to offer roles within their businesses locally.

“These changes are necessary to make Homebase a stronger business for the future.”

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