In 2005 consumer demand was seriously impacted by higher taxes and living costs, as well as concerns about household indebtedness, interest rates and the direction of house prices. A 15% decline in housing transactions and 8% fewer planning applications for home alterations* compounded the weakness in demand for bigger ticket projects such as kitchens and bathrooms (*for the nine months to September 2005).
B&Q estimates that the Repair, Maintenance and Improvement market declined nearly 4% in the year, the weakest market for over 10 years. B&Q’s market share was 14.8% (2004/05: 14.7%) and B&Q continued to be ranked as the number one DIY retailer by Verdict in its 2006 Customer Service Index.
Trading – B&Q’s total sales fell 3.7% to £3.9 billion (down 7.8% like-for-like (LFL)). Customer footfall was lower and sales in all major categories were weak with sales of kitchens, bathrooms and bedrooms the worst affected. Retail profit fell 52.0% to £208.5 million reflecting the lower sales and lower margins as a result of stock clearance, more aggressive discounting and price competition in the weak market. Furthermore, underlying LFL cost inflation was 4% with store rents rising by 6% and business rates by 15%.
Management action – In the second quarter of 2005/06, it became apparent that the UK home improvement market was in a sharp cyclical down-turn with little prospect of an early bounce-back. New management acted to improve competitiveness and reduce costs so that B&Q is better suited to operate in the current market, and well placed to benefit from a market upturn when this comes. Immediate priorities were to develop new product ranges, reinforce price competitiveness, enhance customer service and improve store environments whilst reducing operating and fixed costs.
Product range development – UK consumers continue to regard product choice as the key driver in deciding which DIY store to visit. B&Q has the widest range of all DIY stores with its largest Warehouse stores stocking around 32,000 products. Half of all the smaller, older stores have now been converted to the mini-Warehouse format with an increase of up to 30% in product choice. B&Q also plans to broaden its ranges in its Warehouse stores. For example, from a standing start, B&Q became the UK’s number one retailer of fixed air-conditioning following the introduction of an exclusive DIY range sourced from the Far East. During the second half of the year, the process for reviewing and updating existing product ranges was overhauled with the aim of reducing the time from ‘concept to shelf’. New products introduced in the year performed well, including updated ranges of tiles, wooden floors, bathrooms, kitchens and plants, with more new products planned for 2006/07.
Price competitiveness – B&Q continued its long-term ‘Every Day Low Pricing’ strategy on everyday products, reducing prices across many ranges including paint and light bulbs. A new ‘The Real Deal’ marketing campaign was launched with more prominent communication of great value. B&Q also extended the Diamond Card, its over 60s discount card, to every store in the UK.
In addition, B&Q trialled two ‘10% off’ weekends and two ‘Big Project’ weekends to stimulate demand. These drove footfall and market share in higher ticket projects and reduced stocks to below last year’s levels. During 2006/07 new store tills will be introduced with improved systems functionality, allowing promotions to be specifically targeted at major projects.
Service improvements – ‘Service Squads’ were introduced in over 100 of B&Q’s biggest stores in the year and this roll-out will continue in 2006/07. Service Squads are shop floor staff, linked with two-way radio communications, whose sole responsibility is customer assistance. Stores were also cleared of excess ‘point of sale’ material which improved navigation. Staff servicing the Showroom categories have undergone specialist training to help customers plan and design their kitchen and bathroom projects and more specialist consultants have been scheduled to work in-store during busy periods.
Store development – Following 10 years of expanding the Warehouse store network, B&Q has almost twice the selling space of its nearest direct competitor. Recognising that finding and obtaining planning permission for economically attractive sites for new Warehouse stores was becoming increasingly difficult, B&Q developed a smaller format mini-Warehouse. This has been very successful: popular with customers, easier to develop and with good financial returns. Building on the existing Warehouse estate and the new mini-Warehouse format, B&Q has re-focused its store development on the mini-Warehouse format and the updating of the larger Warehouse stores to showcase finished home improvement projects alongside component tools and materials. It will close older, smaller stores not suitable for conversion due to their proximity to other B&Q stores and limit new store openings to markets where B&Q is not currently represented.
During the year, six Warehouse and eight mini-Warehouse stores opened and 21 stores were converted to the mini-Warehouse format. In total 25 stores closed, 17 as part of the space rationalisation programme. B&Q now has 114 Warehouses, 88 mini-Warehouses and 120 unconverted smaller stores. Format trials continue in four Warehouse stores aimed at developing a modernisation blueprint for the Warehouse estate. These trials are expected to complete during 2006.
At the end of 2006/07 B&Q expects to have 114 Warehouses, 117 mini-Warehouses and 91 unconverted smaller stores. In total, nine new stores will open, six existing Warehouses will be revamped and 23 older smaller stores will be converted. As part of the plans to downsize 17 Warehouses, three are expected to be complete by the end of the year.
Cost reduction – Initiatives to reduce costs have been focused on central functions and productivity improvements. Over £30 million was saved in the year in stores and supply chain by flexing costs in response to lower sales. B&Q’s central office was streamlined with the loss of 400 roles which will result in annualised savings of £16 million in 2006/07.
Screwfix Direct – Following the previous year’s expansion of fulfilment capacity, sales grew 18.7% to £271.3 million and retail profit was £15.7 million (2004/05: £7.6 million). Sales benefited from range development and a bigger catalogue. A further six trial Screwfix Direct Trade Counters were opened in the year and are proving very popular with customers. Fifteen more are planned to open in 2006/07.
Trade Depot –Two trial branches opened towards the end of the year, focused on serving general builders and specialist trade customers. Trade Depot offers a similar range of products to Brico Dépôt in France, including doors and windows, heating and plumbing and kitchens and bathrooms. The early response from customers is encouraging and three further branches are planned for 2006/07.
New ranges at B&Q include this Clevedon kitchen which was featured in a ‘The Real Deal’ television advertising campaign in March. The kitchen has solid oak doors and frames and is part of the Select range of ‘mid-priced’ kitchens being rolled out to all Warehouse stores.