Sale of Texas to spark war in the DIY sector

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The Independent Online
LADBROKE'S decision to sell Texas Homecare, possibly to J Sainsbury, could spark a new war in the do-it-yourself sector, analysts said at the weekend. But the combatants will have little time to establish market dominance before facing a likely threat from a US invader - Home Depot. "When that happens, it co u ld get very bloody,'' warned Tony Shiret, a stores analyst at stockbroker BZW.

Sainsbury, the most likely buyer for the 238 Texas stores, is thought to be discussing a £250m deal with Ladbroke. It has previously shown interest in particular Texas sites, say analysts, but has shied away from taking on the entire chain. An announcement is expected tomorrow.

If Sainsbury does buy Texas, its Homebase DIY chain would move from fourth place to second, with 12.6 per cent of the market, behind B&Q, owned by Kingfisher, which has 15 per cent, according to Verdict Research. But Sainsbury would be unlikely to let things rest there. "Their primary objective must be to become the industry leader, to push B&Q into second place," one observer said.

The fight will be based on quality and customer service - quite different from the deep-discount price war of 1992. The chains then were over-extended and vulnerable. During the 1980s, they had expanded rapidly but their sales crumbled when the housing bubble collapsed, because most repairs and decorating are done by people preparing to sell their homes. Slashing prices did not help, and none of them want to repeat the experience.

Homebase was the only leading chain to stand aloof from the fray, relying on quality and service to hold customers. It is strong in distribution, merchandising and in establishing brand names. Most analysts think it is better run than B&Q, and certainly far ahead of Texas. Its 82 stores provided an operating profit of £23.9m on sales of £328m in the year to May, while Texas made just £2.1m in the six months to the end of June, on sales of £340m.

It will not have it all its own way, however. About £150m will be needed to get rid of 40 or 50 poorly sited Texas stores, renovate the remainder under the Homebase name, and retrain the staff to its own standards. "Texas has been run as a declining cashcow for the last three years," said an industry insider. "The amount of investment in the portfolio of stores has been pretty small."

B&Q is also gearing up for the fight. It is building a chain of 100,000 sq ft warehouses, but so far it has performed below projections, according to analysts. Sales per square foot are thought to be averaging about £120 rather than £150. Still, it made

a profit of £82m on sales of £1.15bn at its 277 stores in the year ended 31 January 1994.

The new contender, Home Depot, is a lean operator with gross margins of 28 per cent, 10 points below its British rivals.