Dobbies Garden Centres revealed today (30 September) that it is set to close 17 stores as it looks to return to “sustainable profitability”.
The garden centre chain is thought to have faced another difficult year after racking up losses of £130m last year driven by high inflation and unseasonable weather dampening sales.
It is not the only retailer that sells garden goods that finds itself in a tough spot, with Homebase CEO Damian McGloughlin informing staff in late August that it was seeking new investment in the same week that it offloaded some of its store estate for a £130m cash boost.
What is going on in the world of garden centres?
Dobbies decline
Dobbies has been working with advisers at FTI Consulting on a restructuring plan that will see it close 17 stores – including all six of its Little Dobbies urban format – taking its store count down to 60 shops in a bid to “address historically uneconomical rent costs and ensure a return to sustainable profitability”.
It will also seek rent reductions at nine further sites. It said that this, alongside “other tangible cost savings” will help it secure “its long-term future…allowing access to future investment”.
The proposals are subject to approval by creditors, and it is understood if they are not green lit then an insolvency process of some kind is likely.
It comes as the gardening retailer reported pre-tax losses had plunged to £130.8m in the 52 weeks to 5 March 2023 – a steep drop from the £21.3m loss the year before.
Sales fell 8% to £278.7m, which it attributed to the impact of “adverse weather in Spring 2022 exacerbated by the macroeconomic conditions”, as well as a delayed refinancing of its debt facilities, which involved short-term cash preservation such as discounting of stock and reduced intake that in turn affected product availability.
While Dobbies seemlingly puts some of its woes into its “historically uneconomical rent” costs, however, property expert, JDM chief executive Jonathan De Mello, argues that some of Dobbies’ issues are “of its own making”, such as its acquisition of 31 Wyevale garden centres and other smaller chains pre-Covid.
He also suggests that Dobbies investment in a new store format in 2019 “was an expensive undertaking which has not yielded the level of return on investment they perhaps had hoped for”.
Former Dobbies chief executive Nicholas Marshall agrees with De Mello that part of its challenges are self-inflicted, claiming that the business has lost sight of its core customer.
Marshall, who managed the retailer between 2017 and 2019, says that when he joined the garden centre chain its “biggest seller” was its 10-piece breakfast available in its restaurants.
“How does that fit into the middle age, middle class market? It doesn’t. It fitted into builders coming in for their breakfast,” he says, adding that at the time its in-store concessions were also “quite down market”.
A year after Marshall stepped down, the garden centre which was owned by Tesco until 2016, teamed up with Sainsbury’s to launch the grocer’s own-brand products in its sites.
Dobbies later replaced its Sainsbury’s concessions with Waitrose in 2022, which now operates shop-in-shops within 47 of its stores.
Despite the shift to cater to a more affluent customer, this summer the retailer opened outlets at its branches in Morpeth in Northumberland and Atherstone in Warwickshire, offering between 30% and 70% off products from across its homeware; outdoor living; gifts, kids and pets; and gardening range.
Homebase up for sale…again
Homebase boss McGloughlin informed staff at the end of last month that the business will “be starting conversations with potential new investors to fuel our next chapter of growth”.
“I have agreed with [current owner] Hilco that now is the right time for me to seek new investment and consider new ownership and next week we’re likely to begin an active sale process,” he told suppliers.
“What this does mean is that we will have the opportunity to explore the market and potentially benefit from fresh investment.”
His comments come days after it agreed the sale of 10 of its stores – equal to 235,000 sq ft of trading space – to former owner Sainsbury’s in a deal valued around £130m.
The move may have come as quite a surprise to many, but the garden and DIY chain has been finding ways to downsize its 140-plus store estate in the last year.
The chain’s Ledbury branch is set to be taken over by discount giant Home Bargains, while its Waltham Cross location was split for German discounter Aldi to take up half the unit.
Homebase’s search for a new investor coincides with its £95m asset-based loan from Wells Fargo expiring in December and follows reports that the retailer’s owner Hilco put the chain back up for sale in February.
The Range and Wilko owner Chris Dawson was reported to be considering putting forward an offer on the chain, however the retail entrepreneur quashed speculation last month.
“We’re looking at loads of things – any angle to open more stores and different brands,” he explained. However, he added: “I think they put two and two together and made nine.”
The ‘For Sale’ sign comes after the retailer plunged to a £85.2m loss in the year to 1 January 2023, down from the £55.6m pre-tax profit it made the year before, as sales dropped 11% to £701.2m.
Homebase has had a tumultous recent past. It was sold to private equity giant Hilco for just £1 in 2018 after Australian giant Bunnings’ botched attempt to conquer the UK by converting Homebase to its fascia.
Following the Hilco acquisition, the retailer immediately launched a CVA and restructuring programme, which resulted in 42 shop closures and more than 1,000 jobs cut.
Under ex-B&Q retail director McGloughin, Homebase’s fortunes were seemingly turned around. The DIY retailer posted a £3.2m EBITDA profit for the year ending 29 December 2019, up from a loss of £114.5m in 2018. This grew further the next year with EBIDTA hitting £61m before exceptionals.
However, in its last reported financial year, things had taken a turn for the worse as the cost-of-living crisis meant shoppers became more “cautious” with their spending.
The business posted an £84m loss in the year to January 2023, from a profit of £30m the year prior as sales plunged 11% to £701m.
It described 2022 to 2023 as a “challenging year for Homebase and retail”. The retailer said: “Customers were cautious in their spending, our costs increased significantly, including over £40m across freight and £10m on energy bills, all while consumer confidence was at an all-time low.”
However, earlier this year a spokeswoman for Homebase said it was “encouraged” by trading after its year end, which had seen the chain “reducing our losses by 70% and growing market share in over half of our categories”.
“We’re looking forward to delivering a profitable 2024 as we enter our peak trading season,” she said.
Garden centre woes
The challenges are not exclusive to Homebase and Dobbies, with the wider gardening sector also feeling the brunt of the cost-of-living crisis and weakened consumer demand.
British Garden Centres development and project manager Amy Stubbs says the weather has played havoc on trading this year.
“It’s never really felt like the season has properly started. We always normally feel like we have a bit of a rush and we can tell that the season’s kicked in.
“But this year, it hasn’t ever felt like it’s got going. It almost feels like any time it’s had a chance to start, the weather has then ruined it and it’s gone backwards again. It’s just been very stop start.”
While Dobbies has been facing the same challenging landscape, Homebase is part reliant on demand for DIY and big-ticket items., which has been hit hard this year.
GlobalData lead analyst Emily Salter says: “The DIY market fell by 0.3% in 2023 as consumers had already made any improvements to their homes during Covid-19 lockdowns, and due to the weak housing market and low consumer confidence for purchasing big-ticket items.
“These trends continued into the first half of 2024, impacting DIY demand.”
These trends will have also hampered gardening spend. However, there are some signs that the market is improving.
Nationwide Building Society reported this week that annual house price growth accelerated in September to the fastest rate seen in around two years as interest rates fall.
An uptick in housing transactions, might give the gardening market the boost that all chains, not just Dobbies and Homebase, are craving.
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