I think you’ll find the difference is explained by comparisons like GDP per capita and average incomes. Australians enjoys better standards of living, have bigger houses (when we are talking about the urban mid market in each country) and so the numbers in the chart make perfect sense.

There are well-off pockets in all the major areas, including some very affluent areas. For example, I lived for 5 years in Cheshire in the North West, near Manchester, with some of the wealthiest small towns and villages in the country. Also, distances are much smaller than Australia, so in your network, you don’t need as many nodes to get attractive economics. I think they referred to a DC in Peterborough, which is well placed to serve both the South East and the Midlands and is close to major transport infrastructure. In rough figures, London, the South East, and the Midlands make up a market of 30 million and will have a disproportionate concentration of the total premium furniture customers.

My sense is that there is a material market opportunity and I think the brand values will translate well. I think the key question is can management execute. I am prepared to back AS and his team. Having sized the potential for ANZ and being well on the way to capturing it (albeit several years of growth ahead), I admire the ambition of going international, even if it adds some risk to the thesis.

I think you’ll find the difference is explained by comparisons like GDP per capita and average incomes. Australians enjoys better standards of living, have bigger houses (when we are talking about the urban mid market in each country) and so the numbers in the chart make perfect sense.

Yep, but it is quite stark when you get out of London and see how different the rest of the UK is. I spent seven years working in finance in London. It's like finance operates in its own bubble compared to the rest of the UK economy. I could never imagine Iceland (the supermarket) being a thing in Australia.

So I think there's all the usual risks around not understanding the market well (I wonder how receptive upper-middle class Europeans will be to a non-European brand etc – this has long been an issue with premium end Australian wine for instance) and not failing but having the UK ops never firing in the same way the Australian business does. Of course it could be an amazing success!

You have to applaud the way they're doing this though; it's a low risk, low cost way to try and enter a new market. I'm all about incrementalism in business. You find something that works and then you replicate it. Scali will hopefully let the UK operation try and find its feet see what works and what doesn't. It's the difference between a founder led business and one run by a CEO who is incentivised to bet the farm.

I agree @Solvetheriddle and @mikebrisy -- it seems a reasonably low risk entry into the UK. A lot rides on managements ability to execute, as already mentioned, but this is a team with a very solid track record.

They must have a had rough 2024 because 2023 revenue was ~$80m. Tough times in the UK at the moment. Scali is a good operator. I have no real opinion on this beyond the general thing about competitive advantages not usually being "exportable".

Just off the call - am on other things today, so just some quick bullets.

• Fabb has suffered from underinvestment in store refurbs, supply chain, online, range, marketing
• Equity essential free, payment was for the secured debt
• Lacks scale to compete on COGS via larger competitors (e.g. DFS)
• AS really likes the 21 store network "better than I envisaged ... its perfect for us"
• Of the 21 stores, only 1 he thinks is not good. Others are good location, long leases, good terms
• AS like the acquistion compared with alternatives: a) organic start is too hard given supply chain economics b) larger network loses the benefit of the Nick Scale brand transplant.
• They've bought an option to exit the existing warehouse ... very old, inefficienct, not how we structure things. They've found a couple of alternatives into which they can invest in to establish the Nick Scale supply chain model
• Management team is good, and they will do cross staffing between UK and Australia to get learning
• Online - will establish Nick Scali online model
• Expect a 20-50% revenue uplift in stores over time (benchmarked this, so confident its achievable)
• UK has been down for two years, but the plan is not depedent on the marco, but AS thinks they are at the low point (I concur, with family members have made two trips to the UK in the last 2 years, its downright depressing there,)
• AS is confident that UK furniture market is very similar to Australia (As someone who has lived 20+ years in UK and 13-years in Australia and furnished 6 homes over 35 years in the two countries, I agree!)

Bascially, over the next 10 months they are going to get going on refurbishing, the network, wind down the Fabb brand and inventory, implement the Nick Scali range, brand, supply chain and marketing.

My assessment

Who knows if the team can execute. Only time will tell. But AS sounds very confdent.

Of course, many of us will remember the disastrous Bunnings entry and subsequent exit from the UK via Homebase. Here's a good SMH article about it. I hope AS has read it.

https://www.smh.com.au/business/companies/going-off-script-how-the-1-7b-bunnings-uk-disaster-unfolded-20180528-p4zhvw.html

What I like about the $NCK move is:

• The 21 store starter pack is a bite sized entry - big enough to achieve supply chain viability, but not so big as to be a risky big bet for the business
• Clarity of vision - $NCK is buying the network of locations and some management, everthing else is being transplanted in
• Economics: you can't get a network of 21 (or 20 good) locations underway for GBP2.00!
• Conservatism: from the call, it sounds like there is some conservatism in the $50m budget, some of which sounds like it might get use to start expanding the network. I like that, because there are risks and not everything will go according to plan.

Another way to look at the deal, $NCK has a market cap of $1.1bn for 107 stores, so $10m per store.

This plan intends to spend $50m to establish a 21 store network with supply chain and online over the next 1-2 years, or $2.4m per store, where the UK stores are on average 13% larger than the ANZ stores. OK, I've no doubt they won't be nearly as profitable as the Australian stores, but there looks like there could be a decent margin of safety in the deal and in the plan.

If AS is right, and over the next 2 years they can establish the $NCK brand in the UK and profitably start growing the network, it opens up a significant new front for growth over the next 5-10 years.

My decision

Happy to take up the SPP offer and bet on Anthony and the team.

Other insight on Australian Market Update

Jan very strong, Feb weakest month of the year - v. little promotion, March has bounced back. Overall things are stable.

AS said "there is some irrational behaviour from competitors ... some smaller retailer are hurting...good,there are too many furniture retailers in Australia."

Gotta love a straight-talking CEO.

Thanks for the discussion on the Nick Scali’s UK acquisition @mikebrisy @Solvetheriddle @UlladullaDave @Strawman and @Bear77. My wife and I are visiting Japan before cruising our way to Alaska on our annual visit to our son’s family in Seattle. There’s not much time to be looking at shares so I appreciate the work you guys are doing. Nick Scali is in our top 10 holdings IRL, so I hope this goes well for them. Obviously I’ll need to do my own due diligence, but at this stage the share offer is looking like a good proposition.

You might not hear much from me over the next month or so, but I’ll definitely be checking in occasionally to keep up with the latest news. Cheers! :)

Nick Scali’s UK acquisition sounds a bit like when Lovisa bought 80 European stores from the German Beeline group for the grand sum of 60 Euros during COVID. These are the type of savvy deals I like to see. However the risk is high, hopefully an asymmetrical one in our favour! I have enough trust in management to stand by them with the SPP.

@Rick Bon voyage. Enjoy the break!

not quite as good as the LOV one, (i remember reading it 3 times and still not believing it!) not at this stage anyway, lets hope it does as well in time.