Bunnings is a popular Do-It-Yourself (DIY) hardware store brand that is beloved for its tools and do-it-yourself solutions. However, a recent business decision made by this company resulted in a loss of over $1 billion.
In this video, I discuss what this mistake is all about, what we can learn from it, and how this mistake can be avoided in your business.
What made Bunnings popular in Australia?
Founded in Australia in 1887, Bunnings Warehouse is a household hardware store that operates over 300 branches all over Australia and employs more than 30,000 employees. The company earned A$11.6 billion in revenue in 2016. Bunnings is considered a success here in Australia.
Why? Here are three important reasons for Bunnings’s success:
- Bunnings made household hardware become accessible to everyone. And with that, they have done a great job of building and nurturing a market for people interested in DIY.
- Bunnings has a good marketing campaign that caters to the DIY market. No question fielded by any of its customers is too dumb for its well-trained staff to answer—customers come out of the store confident that they have the right information to tackle their DIY project.
- And more importantly, Bunnings has made sure to provide products that cater to what the market wants.
So, as with many successful businesses, Bunnings had this impression that since they were successful in one market, they could easily replicate this success in another market. With this thought process, Bunnings bought a range of stores in the UK to give them an immediate presence in the new market and replicated the Australian model in the UK, expecting the business model to work and the profits to start rolling in.
What happened, however, was a series of bad decisions that led to a $1.3 billion write-down for the company.
So why isn’t Bunnings’ working in the UK?
- Unlike Australian customers, their UK counterparts want things done for them, rather than do things themselves. Australians are into DIY, whereas in the UK, the preference is for Do-It-For-Me services. You can easily imagine that a DIY business model will not work well in a DIFM market.
- UK customers want to see aisles and displays that provided inspiration for home projects—and buy finished projects, rather than tools and parts that one needs to work on them. The Bunnings model provided the tools, but not the finished product.
- UK customers have no interest in outdoor furniture or BBQ grills—products that very popular in Australia but are not so in the UK. One factor for this taste difference is the difference in the weather in the two markets.
- The Bunnings brand is literally unknown in the UK. Coming into the market by merely taking over a business that was not doing well in the UK did not do Bunnings any favours either.
So, while Bunnings Australia’s business model fits the Australia market, it cannot be said the same for its UK market. It would seem that there is a mismatch between what customers in the UK wanted with what Bunnings UK had to offer: their product line, store layout, and displays didn’t entice customers to purchase.
What lessons can be learned?
From a business point of view, business arrogance is defined as follows:
“The side effect that one gets when the business under your charge is doing extremely well, even when your competitors may be struggling.”
Business arrogance makes one mistakenly assume that a successful business model will work elsewhere.
The obvious lesson here is that one should not assume that one’s success in one market can be successfully replicated in another market by simply doing the same exact thing. Bunnings’s mistake was to use a copy and paste business strategy—they copied what was working in Australia and pasted the model into the UK market, without taking into account the different taste and preferences of the two markets.
Do you suffer from business arrogance? If you do, you might not even realise it.
I, sometimes, cannot even tell if I am suffering from business arrogance. But what I do have a group of people who I am accountable to—people who can call me out and who can tell me if I am being arrogant. You should have a similar group of people, too, as this will save you a lot of money.
So what can we learn from Bunnings UK?
Understand the market. Take some time in understanding the market you will enter, and particularly the potential customers that you want to serve. Understanding what they want (and don’t want) may save you from the headache of stocking up on unwanted inventory.
Rationalise strategically. When cutting down on costs, do not take out the one thing that makes the most difference. When Bunnings entered the UK market, they promised to provide the “widest range, lowest prices, and the best service” available. But when Bunnings started realizing that the business was not doing well, they opted to cut down on their staff. They took out one of the important factors that would allow them to successfully provide what they promised— the best service.
If you are interested to know more about what a business has to go through when facing exponential growth, you can download the first chapter of the book, ”$20K to $20 Million in 2 Years” absolutely free here. The chapter talks about the differences between a good and a great business and puts out questions that make you consider how you can turn your business from good to great.