Annual Report and Accounts 2007/08
UK Operating review
Revamp programme gathers pace
The UK home improvement market* grew over the first half of the year, before weakening over the second half, as concerns over higher personal debt, less debt availability and falling house prices began to weigh on the consumer. For the full year, the market grew by around 3%, following falls of 0.5% last year and 4% in 2005/06.
Kingfisher’s businesses outperformed the market by delivering sales growth of 5.1%, despite disruption from B&Q’s biggest year of change in its history.
B&Q’s total reported sales were £3.9 billion, up 2.7% (52 weeks). For the first time in three years, despite operating in a challenging market and with difficult summer weather patterns, like-for-like sales were up, by 0.6%. Total sales grew 4.8% over the first half but only 0.5% in the second half (26 weeks), reflecting a tougher retail environment. However, good sales growth from revamped large stores and new ranges helped offset disruption from the ongoing renewal activity.
Retail profit was £131 million (2006/07: £163 million), after £29 million net revenue costs of the renewal programme (£14 million revamping larger stores and £15 million range review clearance activity). Underlying retail profit was broadly maintained. The underlying gross margin rate, before range review clearance activity, was slightly up compared to last year, reflecting less promotional activity and a favourable sales mix towards new, higher margin products.
Total costs grew 4% (52 weeks) with underlying cost inﬂation of 2%, net new space growth of 2% and the additional costs of store revamping offset by cost savings.
Renewal programme update
B&Q aims to grow its share of home improvement expenditure by strengthening its appeal to both the Do-it-Yourself (DIY) and Do-it-For-Me (DFM) customer. During 2007/08, B&Q underwent the biggest year of change in its history, which included updating product ranges, improving its store environments and introducing more services, to ensure B&Q is the first and only store for a greater proportion of customers’ home improvement spend.
New product ranges
B&Q updated 60% of its overall product ranges during the year, supported by a major new advertising campaign. Updated ranges of wall and window coverings, lighting, soft furnishings and kitchens sold particularly well, as have bedroom, plumbing and flooring ranges which have been updated more recently. A better underlying performance is expected from these changes in 2008/09.
Customer service requirements are typically the highest when shopping for room make-over decorative items and major home improvement projects. Good advice, online and in-store, coupled with fast and efficient delivery and installation, are key to good customer service.
During the first half of the year, 800 in-store decorative advisers received practical decorating skills training, to enable them to advise customers on how to style rooms. This initiative has been well received and will be extended to laying flooring, tiling and the basics of plastering and fitting kitchens and bathrooms.
Following a major overhaul of B&Q’s installation and home delivery services, the time from order to delivery and installation of kitchens and bathrooms has been reduced by five weeks on average.
Also, the B&Q website (www.diy.com) has been revamped, with customers now able to use new free room design and bathroom planner software, view more than 35,000 products online and check availability in their local store. In addition, 6,500 products continue to be available for home delivery.
Having revamped around 5.5 million square feet of store space across the year, B&Q now has over half its store space in a modern format. Twenty seven large store revamps, which encompass more clearly defined shop-within-shop sections, room-set displays and more space allocated to kitchens, bathrooms, flooring and tiling areas were completed. This programme remains on track for completion by 2011.
The 11 large new format stores which have been open for more than one year have delivered targeted average sales densities of over £200 per square foot, 25% higher than comparable sized, older format stores.
The higher sales productivity results from customers spending more in the expanded kitchen, bathroom and associated project areas. In aggregate, the revamps, which on average have only 24 weeks’ trading data, have delivered sales uplifts of 13% higher than a ‘control group’. However, measurement of this relative uplift excludes the benefits of updated product ranges, which are now substantially available in all stores, including the ‘control group’ stores.
B&Q now has 117 large stores (38 in the latest format) and 206 medium stores (of which 151 have been modernised). Overall net space increased 2% during the year.
Screwfix total sales grew 28.0% (52 weeks), driven by the continued roll-out of the trade counters, which provide customers with immediate product availability and a bigger catalogue. An additional 55 outlets opened during the year, taking the total to 93. Trade counters now represent almost 40% of total sales. To support this continued growth, a second distribution centre was successfully commissioned during the year in Stafford.
Retail profit increased 6.4%, driven by the strong sales growth and fulfilment efficiency gains, offset by start-up costs for the second distribution centre and an accelerated trade counter opening programme. Excluding the impact from these initiatives, retail profit would have been up around 14%.
Trade Depot, which targets the general builder and specialist trade customer, opened two more branches during the year taking the total trading to six. Underlying trading remains encouraging.
As part of the new management structure, an integrated review of the optimal UK trade strategy across our various brands will be conducted.
* Market data from GfK for the leading retailers of home improvement products and services
- Revamped displays
A key development during the year was the progress of the large store revamp programme. These stores are lighter, brighter and feature more clearly defined shop-within-shop sections, more room-set displays and more space allocated to kitchens, bathrooms, flooring and tiling areas. The store revamp in Farnborough, Hampshire (pictured right), was completed in February. B&Q revamped around 5.5 million square feet of store space across the year and now has over half its store space in a modern format. In total, 38 of the 117 large stores are in the modern format, with 27 completed in the year. The programme remains on track for completion in 2011.