City sceptical on Home Retail's move for Habitat

Argos owner Home Retail has snapped up iconic household brand Habitat for £24.5million to expand its product range.

But the move was greeted with scepticism among City analysts who questioned whether the Habitat brand will appeal to Home Retail's customer base.

Home Retail, which also owns Homebase, has bought the rights for the exclusive use of the Habitat name, its brand designs and intellectual property in the UK and Ireland.

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The group, which itself has faced speculation about a possible takeover bid by the US owner of Asda, Wal-Mart, agreed to acquire the Habitat UK website, three of its flagship London stores and certain brand support operations.

Home Retail bought the assets from restructuring specialist Hilco, which has put the rest of the Habitat UK business including 30 stores into administration. Habitat has shops in Edinburgh and Glasgow and a London head office employing 194 people.

Hilco, which bought Habitat from Ikea owner the Kamprad family in 2009, said it had reduced the business's losses and improved its products after overhauling its management.

But it said the business was unlikely to make a profit in the short term as many stores were expensive and poorly located.

City watchers pointed to the fact that consumers were still shunning big purchases and doubted whether the upmarket Habitat brand, founded by Sir Terence Conran, would appeal to Homebase and Argos customers.

Chief executive Terry Duddy said Home Retail planned to run the three London stores and the UK website as well as introducing Habitat products across the group, including several concessions in Homebase stores.

"The style-led credentials of the Habitat brand, with its strong heritage, will be a significant addition to the group's portfolio," he said.

Shares in the group fell 2.2p to 159.2p following the news. Analysts at Shore Capital said an acquisition would improve the company's ranges and fitted its product expansion strategy.

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Brands that Home Retail had bought in the past, such as Bush, Alba, Hygena and Schreiber, had helped it increase its market share, but current consumer reluctance to make large purchases would not help.

"There is some risk Habitat will not sit comfortably with the target market at Homebase and in particular Argos," Shore said. "Moreover the furniture market is suffering from consumer reticence, with expenditure on big ticket items being scaled back. Any move in this direction is not without its risks and we reiterate our ‘sell' recommendation."

Earlier this month, Home Retail sparked fresh concern about conditions on the high street by blaming a sales slump at Argos on lower purchases of digital televisions.

Mark Photiades at Singer Capital Markets described the move as opportunistic but said it would do little to address the company's trading challenges."It was there and they're going to see what they can do with it, but it's not going to transform the fortunes of the group," he said.

The group is in talks with a major European listed business, thought to be French furniture chain Conforama, about buying the international side of the Habitat business, which has 27 shops in France, six in Spain and five in Germany as well as franchisees in Belgium and Luxembourg.

Habitat chairman Phil Wrigley said: "The sale of the brand and three flagship stores to Home Retail Group secures the future of Habitat and will enable the business to move forward in the UK."

The remaining UK stores not being bought by Home Retail will carry on trading as usual while administrators Zolfo Cooper tries to find buyers.