Annual Report and Accounts 2007/08
Major growth opportunities in expanding markets
Home improvement market growth (forecast average 2008-2010)
Kingfisher has exposure to fast-growing, developing economies in Europe and Asia, including Poland, Russia and China, as well as having well-established businesses in developed markets like the UK and France. In total, the home improvement markets in which Kingfisher operates are worth over £120 billion.
UK and France
We are the market leader in the UK and France, two of the largest retail markets in Europe. Each has large, relatively wealthy populations and levels of home ownership are high. Compared with the whole European Union (EU), a relatively higher proportion of consumer retail expenditure is on home improvement products and services. The home improvement markets in these countries are well-developed, large and have benefited from increasing consumer wealth and growth in the number of homes. Consumers are served by large, well-established national retailers and small local specialists.
One major difference between the UK and France is the level of consumer debt, which is significantly higher in the UK. In 2005, the UK market declined after many years of growth, reflecting weaker consumer confidence as interest rates started to rise and spending increased in other areas such as travel, leisure and new electronic technology. The UK market continued to decline in 2006 but returned to some growth in 2007. However, with consumer confidence taking a sharp downturn towards the end of 2007, most commentators are predicting that 2008 will be another year of market decline. The French market, however, has performed more strongly in recent years with consumers less impacted by rising interest rates.
Kingfisher also operates in Ireland, one of the smallest markets in Europe.
Source: National statistical offices/Euromonitor International/Kingfisher estimates
Italy and Spain
Kingfisher operates the largest home improvement brand in Italy and has a small but fast-developing business in Spain, having entered the market five years ago. Italy and Spain are the fourth and fifth largest retail markets in Europe respectively, with large and relatively wealthy populations. Retail expenditure has grown faster than the EU average over the last five years. Home ownership is high but the proportion of retail expenditure spent on home improvement is significantly lower than the European average. As a result, the home improvement markets are currently less well developed and served by a fragmented group of national and regional retailers.
Both markets are suffering from cyclical pressures at the moment with the Italian market declining as relatively higher indebted consumers cope with higher interest rates, and the Spanish consumer confidence impacted by a weak housing market.
Poland and Russia
Kingfisher is market leader in Poland and is building a new business in Russia. Consumers in these countries are enjoying increasing disposable income and consumption growth is strong. Retail spending in total and the proportion spent on home improvements are both lower than the EU average in these countries but are growing faster as consumers become wealthier and look to improve their homes. Poland has a large, mostly home-owning population with good DIY skills. Russia is the largest European country and developing fast. The home improvement market is being driven by new construction and much needed renovation.
In both markets, consumers have traditionally been served by fragmented small-scale, local outlets and open markets. Over the last five years established retailers from western Europe have expanded into these two markets.
Kingfisher also operates a joint venture in Turkey, a fast-developing market with strong future growth prospects.
China has a fast-growing urban middle class of around 130 million. As a result, China is fast becoming one of the most important retail markets in the world. In recent years many millions of Chinese have been migrating to its major cities. As a result, new homes are being built in these cities at an unprecedented rate, typically sold as empty concrete shells. The new owners are responsible for completing the internal fit-out and decoration themselves. This has fuelled the rapid growth of the home improvement market, particularly design, decorating and installation services. Although there has been a slowdown in sales of new apartments recently in the major markets, long-term growth prospects are strong as expected sustained economic growth in China should result in continued new home construction, growing consumer wealth and greater home ownership. The home improvement market has historically been served by a highly fragmented base of very small local outlets. Larger retailers with more product choice as well as decorative and installation services are emerging.