Repairing the damage of a discount disaster: Easter will be a testing time for DIY suppliers in the wake of recession and a bitter price war, Heather Connon reports

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The Independent Online
THE deepest recession since the war - and particularly the slump in the housing market, on which much of its business depends - has left the do-it-yourself industry bruised and battered. Virtually all the leading players have been forced to re-examine their strategies in the hope of rebuilding their profits.

Easter, a key time as bank holidays account for a large proportion of annual sales, will be the first real test of whether the stirrings of recovery seen so far this year will translate into higher sales.

The impact of the slump on the big companies was graphically illustrated in last week's results from Texas Homecare, the Ladbroke subsidiary. Operating profits slumped from pounds 43.6m to pounds 7.8m and, in a bid to stop the rot, it was forced to provide pounds 20.5m for stock write- offs and reorganisation.

Texas is not alone in its bad results but its rivals would say it is responsible for making things worse than they needed to be. Two years ago, Texas started a fierce price war with the launch of discount weekends, offering shoppers 20 per cent off everything.

Its aim was simple. Texas is the second-largest DIY retailer, with 9.7 per cent of the market, compared with 14.7 per cent for B & Q. It wanted to close that gap by stealing some of B & Q's market share. Not surprisingly, B & Q retaliated by offering still lower prices on its own discount weekends.

Profits and margins at both companies dropped, as did as those of smaller rivals - most notably Do- it-All, the joint venture between WH Smith and Boots - which were dragged into the fray. While it may have encouraged some shoppers to buy more than they needed in the short-term, the long-term effect was damaging.

'It confused the customer more than anything,' said Alan Smith, B & Q's managing director. 'It broke down trust, the customer didn't know what price he should be charged.'

John Coleman, who took over as managing director of Texas last September, believes the effects are still being felt. 'It has significantly devalued the market. Lots of our products are now cheaper than they were two years ago, even after inflation which, contrary to what the commentators say, has not disappeared.'

He points to paint, where discounting was fiercest. 'Prices were hit very badly, but there has been no increase in volume.'

Texas is planning dramatic changes to restore the group's profits. These are likely to include re- examining its position in the market as well as its product range.

Texas offers a wider range of soft furnishings and home improvement products, putting it at the softer end of the market compared with competitors like B & Q and Wickes. Mr Coleman expects to abandon up to a quarter of its current lines and is likely to drop some of its 350 suppliers.

He is realistic about the time the process will take. While he hopes for some improvement in profits this year, 'it will take a couple of years to get the full strategic repositioning into the business'.

Texas's troubles may be severe, but they are as nothing compared with Do- it-All's. Formed through the merger of Boots' Payless and WH Smith's Do-it- All four years ago, it has suffered from putting together two weak brands and from combining two different management styles. In the year to last March, it lost pounds 28.8m and little improvement is expected in the current year.

Like Texas, it is making strenuous efforts to improve its positioning. It is introducing 'new concept' stores, in which products are grouped by projects such as paving or patio-building, and expert advice is on hand. It is also planning to sell up to half of its stores which cannot be adapted to that approach. But the roll-out of the new format has been painstakingly slow and the strategy is still unproven.

B & Q has not been immune to the problems afflicting the industry. While it has remained profitable, the pounds 81.1m earned in the year to January 1993 was 15 per cent below the 1991 peak, despite expansion in the number of stores. Like the others, it too is re-examining its strategy.

It is attacking the market on two fronts. First, it is pioneering the strategy of everyday low pricing which its parent, Kingfisher, is introducing throughout its retail chains. That means permanent price reductions on 500 key products under the slogan Key DIY. The group hopes that price promise will gain it enough extra volume to compensate for the lower prices.

It has yet to prove itself. Sales in the 24 weeks to 15 January were up 4.4 per cent on the previous year, a respectable increase but not as high as the City expected. Mr Smith said: 'It is a five-year build. Otherwise, all it is is another promotion.'

Its other strategy has been imported from the US. It is opening superstores called Depot that are up to 90,000 square feet, double the size of its traditional stores, offer 50 per cent more items and have staff on hand to advise on everything from plumbing to carpentry.

Most important of all, however, its prices are cheaper than traditional B & Q outlets because the scale of the business means it can be run more efficiently.

It has opened about 20 of these stores so far and is likely to expand the chain aggressively. Alan Smith, its managing director, admits that the approach is not without risk.

The size and attractive price promise of a Depot store means it will attract customers from a far larger catchment area - one as likely to include a traditional B & Q as a rival store. And customers who shop in smaller stores may be disgruntled at not getting the prices available at a Depot.

The efforts of B & Q, Texas and Do-it-All to differentiate themselves may be drawing on the example set by Homebase and Wickes, two of the most successful DIY chains. Both stayed out of the price war but the strength of their offer and knowledge of their target market meant they survived rivals' discounting relatively unscathed.

Homebase, the J Sainsbury subsidiary, is under no illusions about its position: 'We are very clear we are aiming at the home enhancement and gardening market, not at the builder,' said Ross McLaren, deputy managing director.

It has placed great emphasis on gardening, which accounts for about 30 per cent of its sales, and has a number of concessions - like Laura Ashley and Sharps furniture - which give the stores a more upmarket feel than its rivals.

Wickes is at the opposite end of the scale. It aims for builders and serious DIY-ers and has only a limited range of products - fewer than 4,000, compared with more than 40,000 at B & Q Depots. Wickes also issues catalogues with prices that are valid for about eight weeks, making short-lived special offers difficult.

'Our prices have to be good, because we are giving them to competitors,' said Henry Sweetbaum, Wickes' chief executive. 'And we felt that if we did anything like discount weekends, we would have lost credibility with our core customers.'

Clive Vaughan of Verdict Research, the retail consultancy, believes that recovery in the housing market should be enough to guarantee the industry a few years of growth - at least 8 per cent for the next three years. Whether that will be enough to go round - particularly as Magnet is likely to re- emerge as a player following its acquisition by Berisford - remains to be seen.

(Photograph omitted)