Discounts dampen DIY giants' Easter optimism: Uneasy days for shareholders as price war develops

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The Independent Online
IT'S an incurable seasonal urge. That sudden desire to rush out and buy lawnmowers, power drills, paint and wallpaper is as overwhelming as the appetite for chocolate eggs. DIY retailers sell about pounds 6bn of products a year and are never busier than at Easter and the May bank holidays.

Texas Homecare, B&Q, Do It All, Homebase, Wickes, Fads and the rest have been gearing up for what they hope will be a flood of customers. The advertising hype and gimmicks are endless. B&Q, the Kingfisher chain, kicked off hostilities two weeks ago, announcing discounts averaging 10 per cent on 500 core lines. It also launched advertisements proclaiming its environmental credentials - such as peat alternatives and solvent-free paint.

Texas, owned by Ladbroke Group, retaliated with discounts on 750 key products, from stepladders to saws. Do It All, jointly owned by Boots and WH Smith, slashed prices on 300 core products and trumpeted its new Bonus Card, giving a pounds 5 voucher to customers clocking up more than pounds 100 of purchases.

Even Sainsbury's Homebase joined in, hyping up its weatherproof paint - tested, according to the advertising copywriter, in South-eastern sun, Scottish cold and Manchester rain.

But while consumers enjoy the offers and counter-offers, shareholders are more uneasy. They fear the price war that badly dented margins 18 months ago may be erupting again. In the interim there has been an uneasy truce during which the main players have limited themselves to discounting on specific products.

According to Clive Vaughan, retail analyst with Verdict Research, 'there has always been a level of promotional activity in DIY. But these discounts do appear to be much more broad- ranging. B&Q, for example, is trying to move away from gimmicky pricing to becoming a permanently good value operation.'

But the discounting is not as aggressive as it was between October 1991 and May 1992 when blanket reductions of 20 or 25 per cent were offered by B&Q and Texas over some weekends. Retailers had stocked up, believing an upturn in the housing market would lead to a rush to their stores. The housing market did not recover, and neither did DIY demand. Increasingly panicky retailers outdid each other in a desperate effort to shift volume. Margins were shredded.

Traditionally, the stores cannot lose at Easter. If it is sunny, householders splash out on gardening equipment, deckchairs and even - in a burst of mad spring-induced optimism - a barbecue. If it is wet, they decide it is time to paint the spare room or finally insulate the loft.

Do It All, which plunged into heavy losses during the latest slump, is understandably alarmed about the latest round of discounts. 'Some of our competitors are entering into vicious price cutting,' a spokeswoman Kim Fernihough says. 'At the operating level our margins are picking up, but they will suffer if our competitors force us into a price war.'

So far it has been hard to gauge the true cost of the discounts. Although B&Q's 500 price cuts sound like they would dent margins, they have to be put in the context of its 20,000 lines. Full hostilities have not yet been resumed. But if insufficient shoppers get the DIY urge this weekend, expect a bigger burst of artillery come the May Day bank holiday.

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