The experts

Kingfisher, the market leader in European DIY retailing, ended the recently completed financial year with a substantial profit increase: of around 20 per cent, resulting in profit growth to £ 570 mio. Three years previously this figure amounted to £ 386 mio. During this period Kingfisher’s net debt also moved from £ 1.6 bn to a net cash position.Nevertheless, when it comes to sales figures, the company seems to give the impression of marking time at present. It completed its 2010/2011 financial year (to 29 January 2011) with a sales increase (in constant currency) of 0.5 per cent to £ 10.450 bn. This is revealed as a deficit of 0.5 per cent once exchange fluctuations are taken into consideration, and -0.9 per cent in like-for-like terms. In France the UK group recorded sales of £ 4.204 bn, or 2.9 per cent (constant currency) more than in the previous financial year; there was also an increase of 1.6 per cent in like-for-like terms. In Great Britain and Ireland the company recorded a sales decline of 2.4 per cent to £ 4.333 bn (-3.0 per cent like-for-like). Sales in the other countries experienced an increase of 1.7 per cent to £ 1.913 bn, though this amounted to a decrease of 1.2 per cent like-for-like.In the fourth quarter aggregate sales saw a rise of 2.0 per cent (in constant currency) to £ 2.305 bn, or 0.6 per cent like-for-like. In France there was an increase of 3.0 per cent to £ 896 mio. Volume sales in Great Britain and Ireland rose by 0.7 per cent to £ 954 mio. The company’s stores in Poland recorded sales of £ 238 mio, which amounts to an increase of 7.1 per cent (3.3 per cent like-for-like). New openings in Russia resulted in sales growth of 42.5 per cent to £ 64 mio, while an increase of 12.1 per cent to £ 47 mio was announced for Spain. On the other hand, sales in China fell by 21.5 per cent to £ 106 mio following two store closures, which amounts to a decline of 16.2 per cent like-for-like. The company reports that it nevertheless achieved a profit here. It would be a bad mistake to conclude from these figures that the retail giant is failing to make any headway overall. A state of standstill is certainly the last thing that comes to mind when one takes a closer look at the group’s activities. And any such impression vanishes into thin air as soon as one speaks to CEO Ian Cheshire. DIY International had the opportunity to do so, together with other European colleagues. The challenge that Cheshire sets himself, “Let’s get better and better at understanding our customers”, is the key that he intends to use to unlock further growth for the company. The group simply must position itself and its different trading brands as competent to the highest degree. “We think by being the world expert in home improvement we can unlock growth,” says Cheshire. “Our job as retailers is really to be the experts for our customers and to say: ‘I know what you want!’”. Taken at face value, this attempt at combining customer orientation with expertise is not particularly original. However, one crucial aspect is added in the case of Kingfisher: the sheer size of a group that is actively involved with sales channels and participatory interests in eight individual countries, which means it can apply economies of scale. This is possible because the differences between the countries in question are not really so great, especially since 90 per cent of sales are achieved in Great Britain and Ireland, France and Poland. It suits the European market leader very well that “in western Europe 70 to 80 per cent of the customer trends are the same country by country”. This is reflected in the racking of the DIY stores, where 80 per cent of the product offer consists of “similar ranges” and no more than “20 per cent has to be local”. Purchasing is consequently one of the key words that come into play when Cheshire describes the strategy he intends to employ for actively positioning the group’s outlets as DIY and home improvement stores with the expertise. Own brands, innovation and the internet are the other key concepts. On the purchasing side Kingfisher is working on developing a common range, which involves a close collaboration between the commercial directors of the different retail formats, such as Véronique Laury-Deroubaix at B&Q and Christophe Mistou at Castorama France. Cheshire acknowledges the difficulty of the task: “This is really a big process in converging different businesses into becoming much more of an integrated company than it is now.” The group’s own-brand policy also aims for better integration of their activities in different countries and retail formats. “The way we meet the growth challenge will be based on our own-brand programme,” declares Cheshire. Here Kingfisher has started with a major cut: of the 150 own brands established separately up to now in the group’s different retail formats, the company has cut down to just ten – one single brand per category (except in the power tools category with two brands). The brand names have been deliberately formulated so that they are able to function across all borders: between both retail formats and countries. For example, whether an own-brand product from the outdoor leisure category is sold in a British B&Q store or in a Polish Castorama – from this spring on it will always be sold under the “blooma” brand name. The other own brands are to follow in the course of the year. The number of SKUs in the own-brand segment is to increase from 5 000 to 45 000, and their share of sales to around 40-50 per cent. At the same time, however, Cheshire by no means sees economies of scale in purchasing and own brands solely as a matter of pricing. Instead he stresses the significance of innovation, which is a matter not only for industry but for retailing as well. “Product innovation is going to be a key driver in our market,” says Cheshire. Kingfisher operates its own innovation centre at the Castorama headquarters in Lille, with about 30 specialists such as product designers. Here, too, Kingfisher is playing the integration card. “It started as a French innovation centre, it is now becoming a group innovation centre,” reports Cheshire. Here, at the latest, is where the question of the role of suppliers arises, for “economies of scale” can sound threatening from their perspective. Cheshire formulates three points that he expects from suppliers and which all have to do with the core topics that are currently exercising the group. Point one is “continued innovation”, the “critical thing within the next five to ten years”. It is Cheshire’s conviction that consumers will spend their money on “things that are new, different and valuable”. “Integration” describes the second point expected of suppliers: “to work very, very closely with us as a total group” in order to optimise the supply chain from the point of view of both time and cost, while avoiding any wastage of storage capacity, for instance. “The really efficient connection with Kingfisher is a really important thing.” Finally the third point: “Helping us as visionaries in the category. Where is the customer going? What are the value drivers in the business?” In brief, the ideal supplier should “help us to become expert”. Understanding what the customer wants is not the least of the reasons why Kingfisher will be expanding its activities on the internet quite considerably. A first step is a carefully targeted investment in data mining, where the group is working with Beyond Analysis, a London consultancy. However, the collection and analysis of customer data in a DIY store is not at all easy because of the far lower purchasing frequency than in grocery retailing. In order to make progress here the company has set up “a customer office in the UK to really make this an engine of information that drives our business more now than it has in the past”. It is perfectly clear to Ian Cheshire: “The data analysis will be absolutely fundamental for building up business.” The next step will be some time in the coming, but Cheshire has no doubt about the direction it will take: “One of the key differences for our industry in the next five years is the arrival of true multi-channel retailing.”