Sainsbury’s has said it will invest £130m in buying 10 stores from Homebase and converting them into big supermarkets in the retailer’s biggest expansion in more than a decade.
The deal marks the changing fortunes of two big British retail brands as questions are raised over the future of the DIY chain.
Damian McGloughlin, managing director of Homebase, wrote to suppliers on Thursday to say it was trading “behind where we planned to be” and would begin an “active sale process” to seek new investment next week.
Sainsbury’s, the UK’s second-largest supermarket chain after Tesco, said the first of its new shops will open next summer. The complete set, including stores in England, Northern Ireland, Scotland, will employ 1,000 people and Homebase workers at risk of redundancy will be guaranteed an interview.
Under the planned expansion, the retailer will open as many large stores next year as it did over the previous five years.
Simon Roberts, the chief executive of the Sainsbury’s group, which also owns Argos and Habitat, said he was pushing the button on expansion as its food business “continues to go from strength to strength”.
“We have the best combination of value and quality in the market and that’s winning us customers from all our key competitors and driving consistent growth in volume market share. We want to build on this momentum which is why we are growing our supermarket footprint,” Roberts said.
The expansion comes five years after Sainsbury’s closed 15 large supermarkets and dozens of Argos stores after discounters Aldi and Lidl stepped up expansion in the UK, putting pressure on traditional chains.
Tesco, Asda, Morrisons and Waitrose were also forced to retrench as the rise of online shopping also hit sales.
Sainsbury’s and Tesco have also won back market share by price-matching Aldi on key product lines while offering more tempting treats and loyalty card discounts all under one roof.
The retailer’s broad range of products has also made it well-placed to benefit from shoppers trading up to more expensive foods as the pressure on their finances eases slightly and many continue to save money by treating themselves at home instead of dining out.
Homebase – which its current owner, Hilco, previously tried to sell four years ago and reportedly put back on the market this spring – is in final negotiations to extend a lending facility of up to £95m with Wells Fargo that is due to end in December.
The DIY chain has had a chequered history since it was created by Sainsbury’s in 1979 and sold off by the supermarket in 2006. After the sale of the 10 stores it will shrink to just over 130 outlets, almost half the 250 it had when Hilco bought it for £1 from the Australian retail group Wesfarmers in 2018.
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Wesfarmer owned the group for only two years, after what is viewed by some as one of the most disastrous ever retail takeovers.
McGloughlin told suppliers that the sale of 10 stores formed “part of our longer term plans to transform Homebase and return to profitability”, as first reported by the trade journal Gardenforum. Homebase’s parent group, HHGL, fell £85m into the red in the year to January 2023, from a profit of nearly £56m a year before, after sales slid 11% to £701m.
The DIY industry boomed during the Covid pandemic but is now facing sluggish sales as households pull back on big renovations in the face of higher costs, including energy and food bills, as well as increase mortgage or loan payments because of higher interest rates.
Shops Sainsbury’s is buying from Homebase: