Standby for a shake-up of the DIY landscape

Kingfisher chief executive Véronique Laury may be confident that Bunnings poses no threat to B&Q or the DIY landscape when it takes over the Homebase chain from Home Retail Group, but we are not as confident.

Of all the retail sectors, DIY is one of the less dynamic in the UK. The stores are uninspiring, the formats are stayed and there has been little to get excited about online either. In store standards are poor, ranges can be random and price positioning is weak against online competitors.

This has been the state of play for as long as 10 years and given the choice, we know that the UK customer is up for a change as demonstrated in grocery with the entry of the German discounters.

In short, we are eager to see a shake-up of the UK’s DIY landscape and we believe Bunnings is just the business to do it.

Bunnings DIY landscape

Bunnings can shake up the UK DIY landscape

Bunnings is an Australian DIY specialist operating out of big box formats as well as smaller formats and trade centres, so it has the confidence and experience to rock trade DIY retailers Screwfix and Wickes as well as B&Q.

Coming in to run the UK operation is Australia’s Chief Operating Officer. No, he doesn’t know the UK market and right there is the advantage: no baggage, no preconceptions, a blank sheet. Isn’t it about time that the model is deconstructed and re-examined? Wesfarmers, the owners of the Bunnings facia, did just that with Coles in Australia and turned a loss making retailer into a market leader.

With the operational excellence it can bring, confidence to try new formats and ranges, Bunnings could definitely attract the attention of the UK customer. There has been talk of BBQ’s in the carparks as a gimmick to attract customers, but so what if it is a gimmick. Gimmicks attract attention. If that is followed up with an exceptional shopping experience, it will have worked.

Kingfisher have little to worry about in the very short term as a re-brand and strategic review takes time, but a year from now, 3 years from now, we are excited about what the DIY landscape could look like.



Will Sainsburys acquiring Home Retail Group give them what they want?

This time last week many retail experts were scratching their heads, looking for the logic behind Sainsburys bid for Home Retail Group. One week on and we can now see the logic,but we can also see the pitfalls.

Home Retail Group’s trading update today shines a light on Homebase, under talks to be sold to Australian retailers Wesfarmers, where like for like sales for the quarter were up 5%. A raft of store closures and cost reductions place Homebase as an attractive proposition for the Australians who have a reputation for turning around businesses like Coles. The UK DIY market is overdue a shake up, uninspiring stores, high prices and ridiculous range architecture in some instances (just look at the light bulb range as an example).

With Homebase out of the picture, Sainsburys potentially now have a clear run at Argos. What does Sainsburys need strategically and what will they get in acquiring Argos?

Argos concession Sainsburys

Sainsburys lack an offer to fill its biggest stores.

Sainsburys confess that they have 6% excess space, where its ranges simply are not strong enough to fill productively. While they have opened gyms in 3 stores, that is not going to be a scalable solution. They also have Argos digital concessions in some stores which has clearly proven to be a footfall driver. This is an attractive use of the excess space that can be extended to many more stores.

The customer profiles of the retailers seem to correlate, although there is plenty of anecdotal evidence to suggest that although they may be the same age and demographic they are not one and the same. It is our view that if Sainsburys can attract footfall to its stores for an Argos concession, then there is scope to add transactions at the till.

Argos reported a significant decline in walk-in sales to its stores over Christmas which was not compensated for by online sales. No big surprise really, the existing store format is outdated and the catalogue a desperately slow route to purchase. Digital stores faired better bringing an extra 3% growth to the table but the reality is Argos are strong in online sales and that is where the emphasis is. Expect store closures under Sainsburys ownership.

Sainsburys margins in food needs shoring up by general merchandise.

The margin pressure on food from price cutting to compete with discounters leave a gap that Sainsburys will be looking to offset with higher margin general merchandise sales. A walk down the electrical aisles in Sainsburys suggest that it has a good record in delivering limited ranges and offers but to extend it takes time.

Buying Argos, and its general merchandise brands like Chad Valley, Cookworks and Habitat, gives Sainsburys access to ranges that are already proven and performing. Whether the ranges are exactly right for the Sainsburys customer or will need reviewing at a later date, is a much lesser concern than having the range in store in the first place.

Sainsburys want Argos’ distribution and fulfilment expertise

To us this is secondary. The Argos system is not convertible to being able to fulfil online grocery orders so Sainsburys will continue to run its existing distribution operation as well as the Argos one. The case for it being a significant advantage to Sainsburys is weak. Complexity is something generally to be avoided but if the immediate benefit outweighs the cost then so be it.  In time, and with investment, a necessary distraction could be to build an online distribution system that serves both general merchandise and grocery.

Sainsburys are looking for good margin shelf fillers, footfall and distribution expertise. They will get that if the deal goes through but they will also get an out-dated shop format, complexity and cost. The Sainsburys shareholders will decide.

MandS store front

Marks and Spencer Customers clicked their way through Christmas

The evidence is clear from early Christmas trading and from this week’s retail updates, including Marks and Spencer that Christmas sales shifted significantly online.

mands online

M&S.com reported a 20.9% increase in sales today, John Lewis reported 21.4% increase in online sales and Next online also reported growth this week, reflecting the slump in High Street footfall in December. However it was not all good news as decreases in retail sales offset many gains.

For High Street retailers that have a well integrated online and store operation, there is an opportunity to bring customers back into store, for advice, service, order collection and should the need arise, returns. Next, John Lewis and Marks and Spencer have that and have the results to show for it.

Attracting customers back in store is key for the Spring season as the Sale activity dies down. Marks and Spencer in particular are in desperate need of footfall in general merchandise and with a new CEO in place it must be top of his agenda. They cited poor availability as well as warm weather for falling general merchandise sales but this simply does not add up. If the weather was poor then there should be an excess of stock. Of course stock has a nasty habit of sitting in pockets, one line selling out and another just sitting there. This says that Marks and Spencer simply have problems with its ranges.

MandS navigation

The other big issue Marks and Spencer have, and we have said this before, is navigation and confusion in store. There are just too many sub-brands which are not easily identifiable in store leaving the customer baffled. If she wants a pair of jeans, she has 4, 5 or even 6 possible destinations in store to select from. No wonder she gives up and searches online, possibly even on the Marks and Spencer website.

Next on the other hand, have a strategy that is working very well for them. Sales up online, retail sales pretty much flat, echoes what we are witnessing across fashion, but the strength of the brand and deep customer knowledge has supported the Next profit line well. There have been some murmurs predicting a change in fortunes for Next, where its lead is being eroded by the competition. The numbers on their own do give rise to concern, however, Next has a good base of strong management, desirable fashionable ranges, and excellence in logistics.

Key priorities for fashion retail this Spring are brought into focus with the results this week: it is about channel integration and the customer journey as it flows between online and in store; it is about in store excitement, navigation and service. These are not new priorities but should be given renewed management focus, and in the case of Marks and Spencer, a new manager to do it.