Verdict, the retail research group, argues that that the latest bout of consolidation in the sector could lead to a three-way merger between Do It All (the troubled chain put up for sale by Boots), Great Mills (controlled by building materials group RMC), and Focus.
Verdict says that as consumer spending slows down, these three small players will need to link up to compete with market leaders B&Q, owned by Kingfisher, and Sainsbury's Homebase.
"There are too many stores for the market. If consolidation does not happen, the weaker players will fall by the wayside," said Verdict chairman Richard Hyman.
A merged entity encompassing Do It All, Great Mills and Focus would have a 7.5 per cent market share and sales of pounds 745m, overtaking Wickes as the third largest DIY chain.
The report shows that the DIY sales remained buoyant last year, posting an increase of 10.4 per cent to pounds 11.7bn - the strongest rise of the 1990s. Verdict warns that growth in 1998 will fall to under 5 per cent, due to the economic slowdown, but sales will still remain at "respectable" levels.
In spite of strong sales growth, the number of superstores continues to fall as chains move to larger shops such as B&Q's Warehouses. "We do not expect superstore numbers to see much growth. What is happening is a qualitative change in favour of larger stores with wider offer of complementary merchandise," Verdict says.
"The DIY sector is pretty robust and will remain so," said Mr Hyman.