Size does matter in DIY sector

Analysis: Almost 100 B&Q Warehouses are to be opened. The market is stirred. Will it be shaken?
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The Independent Online
BRITAIN'S DO-IT-YOURSELF market has been a haven of relative calm in the retail sector in the past five years.

A bitter price war in the late Eighties has given way to price stability and good returns for the big players.

That peace was all but shattered on Monday with Kingfisher's announcement of a pounds 750m investment into B&Q Warehouse, a subsidiary of its market- leading B&Q. It said it would increase the number of stores from 30 to 125 by 2003.

Homebase is number two in the country's DIY market. Its parent, Sainsbury, reports interim results today and these will be analysed keenly for signs of a possible return of fierce price wars in the paintbrush, wallpaper and gardening market.

To get some idea of the scale of the planned expansion by B&Q, imagine a shop the size of Wembley Stadium opening on the outskirts of every medium- sized town in the UK. Kingfisher's plans include creating another 20,000 jobs, half to be full-time - but should the competition be worrying that it could be at their expense?

Analysts say Kingfisher's move is sensible. The company recently bought 50 per cent of the French building products group, Castorama. Purely on economies of scale advantages, a joint B&Q and Castorama can generate enough buying economies to cut prices and keep margins intact.

"Warehouse is an incredibly powerful format that will crush everything in its path," said one analyst yesterday.

Richard Perks, of retail consultancy Verdict Research, says B&Q is merely developing a product that has proved its worth and that is popular with the customers. Moreover, larger stores are more efficient and a company of Kingfisher's size can afford to take a long-term view of its investment.

Even some of the competition grudgingly admit to seeing the sense.

Jon Moulton, who runs High Street chain Fads, says DIY is one of the few areas currently generating good returns on capital and sales so there are clear returns on offer from Kingfisher's expansion.

However, far from trembling at the prospect of a wave of giant category killer stores opening, some competitors are dismissive or, at least, sanguine about Kingfisher's plans.

Bill Archer, the chairman of Focus/Do-It-All, which has 212 stores, said: "It's a lot of hype. Sir Geoff Mulcahy, Kingfisher's chairman, has got as much chance of going to the moon as he has of opening 125 Warehouse stores in the UK.

"For a start, current property planning laws are incredibly restrictive. The UK market just won't stand it, either.

"For every Warehouse store that opens, B&Q cannibalises two of its existing 254 B7Q Supercentre stores."

He sees Kingfisher's plans as part of a consolidation process that will reduce the number of players in Britain's DIY market to just three.

A spokesman for Wickes also said that the company would not radically alter its plans, even though the new Warehouse format specifically targets the builders' end of the DIY market, a traditional stronghold for Wickes.

Others are not so sure. Mr Moulton, of Fads, said: "We are all concerned". Rather than compete head-on, the way forward is to differentiate from Warehouse, he said. Wickes, for instance, has introduced newer, "soft DIY" items away from the traditional builders' side and designed for female customers. Do-It-All now sells pet and craft products.

Britons buy some pounds 7bn of DIY products every year. Of that, nearly one- fifth goes through B&Q outlets.

Homebase has 13 per cent of the market. Do-It-All, recently bought by Focus from Boots for pounds 68m, is third with 10 per cent. Wickes, AG Stanley/Fads and Great Mills are the other significant players.

Warehouse, though, is something apart from the existing blueprint for DIY sheds. B&Q began rolling out the new-look Warehouse format in 1994. Its size is its key. Existing out-of-town DIY sheds are about 40,000 sq ft in size. A Warehouse can be between 100,000 and 150,0000 sq ft.

B&Q's original plan was for 70 stores, but its success has prompted the programme to be hastened.

According to Sir Geoff, doubling the planned rate of opening will ensure that B&Q maintains its record of growth and is able to consistently outperform its competitors.

The one concern for analysts is possibly about the timing of Kingfisher's move. Real prices have never recovered from the price battles at the end of the last decade. B&Q was involved then and the other protagonist, Texas, is now absorbed into Sainsbury's Homebase.

Sainsbury could decide to follow the Warehouse route and build bigger stores. One industry insider claimed, though, that Sainsbury has already dismissed the option in favour of expanding abroad and developing a broader product range.

The other imponderable is where the economy is heading. DIY sales are closely linked to residential moves, which are slowing down rapidly. If that happens and the economy falls a long way, "Kingfisher will look pretty foolish," says Mr Moulton. It is easy to imagine that there are a lot of DIY shed managers hoping for just that outcome - even as they play down Kingfisher's move.