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Strategic update

 

Following the appointment of Véronique Laury as Chief Executive Officer, the leadership team commenced a review of Kingfisher’s business and strategy.

They concluded that Kingfisher’s position and prospects in the attractive European home improvement market were strong, but that the business needs to be organised very differently to deliver the full potential of ‘ONE’ Kingfisher.

 

Review findings

Home improvement is a great market with huge potential

Home improvement is a top customer spending priority, with 58% of Europeans doing a home improvement project last year. The market is resilient and its growth is supported by favourable 'megatrends' which are similar across all markets. For example, changing demographics as well as ongoing societal trends mean that households are needing to adapt their homes, while increasing urbanisation means more people are living in smaller homes. In addition, the rise in home technology and automation is changing the type of improvements people want to make to their homes, all of which provide us with sustainable opportunity.

We are right to focus on Europe+

The European home improvement market is an attractive sector, worth £235 billion(1) across a customer base of 320 million homes. Kingfisher currently has a 5%(1) share of this large, fragmented market, meaning there is plenty of scope for growth.

+ Consists of Europe and its bordering countries (eg. Russia, Turkey)

(1) Source: AMA builders merchants report 2014, AMA commissioned research, Mintel Europe DIY report 2014; BCG, KFI annual reports

We can achieve significant benefits from developing a more common, unique and effective offer

It is becoming increasingly clear that customer needs are already largely the same, that the markets we serve are fundamentally more similar than different, and that there are few known manufacturer brands across the sector. There is therefore an opportunity for Kingfisher to develop a unique offer that can be sold across our businesses. Kingfisher already has significant scale, with over a million customers a day. The potential of our £7.4 billion buying scale is still relatively untapped and we have a fragmented supplier base. In addition, we have made progress on group sourcing (now at 22%(1) of sales) and establishing our own brand product ranges (now at 30%(1) of sales).

(1) Across top five operating companies - Castorama France, Brico Dépôt France, B&Q UK & Ireland, Screwfix UK and Poland

There is no one clear winning format or channel in our market today

Kingfisher's multi-format structure is therefore an advantage, having businesses across 'big box', 'medium box' and 'omnichannel'* formats. However, being omnichannel everywhere is a 'given'.

We can achieve significant benefits from unifying activities and standardising processes

Currently there are few shared processes within Kingfisher and the sharing of infrastructure is limited. There is also no standardised operating model, which means, for example, that our Brico Dépôt businesses in France, Spain, Romania and Portugal operate in different ways.

Going forward, we will operate within the following clear set of guiding principles:

  1. Customer needs come first
  2. Create a unique and leading offer
  3. Same products across Europe presented to customers in the same way
  4. Limited number of formats and omnichannel everywhere
  5. Low cost always
  6. One company culture

We believe that following these principles will drive higher sales from having a unique, differentiated offer at good prices for our customers whilst maintaining our gross margin rate and lowering our cost base. Combining this with continued strict capital discipline will deliver improved financial metrics for our shareholders.

We need to organise ourselves very differently

This will involve taking what is essentially a locally managed set of businesses and creating instead a single, unified company. The first step in developing this new organisation (‘ONE’ Kingfisher) is the creation of a new, international leadership team with more focused cross-company roles including:

  • Chief Executive Officer
  • Chief Financial Officer
  • Chief Offer & Supply Chain Officer
  • Chief Digital & IT Officer
  • Chief People Officer
  • 3 Operations Directors by format for Big Box, Medium Box & Omnichannel
 

Areas of focus

Our work to mobilise ‘ONE’ Kingfisher will be focused on the following five areas, where we have identified the first ‘sharp’ decisions that are being implemented at pace:

1. Customer

Everything will be based on our deep knowledge of customer needs and customers' shopping journey.

First sharp decision:

  • To develop unified garden and bathroom businesses across Europe, covering the full design process from customers' needs to customers' homes.

2. Offer

Of a total of 393,000(1) products sold across the company, only 7,000(1) products (representing 7%(1) of sales) are currently sold in at least two operating companies. Of the 393,000 products, a large proportion relate to delisted and ex-promotional ranges which do not form part of existing retail planograms*. Beyond this, driven by the knowledge that customer needs are more similar than different across geographies, planogram product ranges can be more similar in all our markets across Europe.

First sharp decision:

  • Develop plan to cut existing product tail*

3. Formats/Channels

Our goal is to present the same products to customers across Europe in the same way under a simplified model. This will drive operational efficiencies whilst recognising that customer needs are evolving quickly so we need to adapt to this fast changing retail environment. Our existing channels will be managed under three formats: Big Box, Medium Box and Omnichannel, and each will be standardised across all of our markets.

First sharp decisions:

  • Address our property tail:
    • Kingfisher has said for some time that B&Q UK & Ireland can adequately meet local customer needs from fewer stores and that some of the stores should be smaller. As a result of detailed catchment reviews Kingfisher today announces the following plans:
      • Close 15% surplus B&Q space (c.60 stores; 6 right-sizes*). The closures will take place over the next 2 years with the right-sizes planned to be completed in FY 2015/16. The closures are being prioritised by the most over-spaced catchments in order to retain customers and sales. This will give rise to an exceptional charge of around £350m relating principally to onerous lease provisions over the next 2 years
      • Optimise vacant space through a combination of outright sale and sub-letting. We are already in discussions with several retailers
    • Close the small number of loss-making stores we have across Europe
  • Do more of the good we have:
    • Start Big Box revitalisation programme across Europe, drawing on our latest, most developed formats
    • Extend the Screwfix Germany trial by 5 outlets taking the total to 9, replicating our highly successful omnichannel format developed in the UK

(1) Across top five operating companies Castorama France, Brico Dépôt France, B&Q UK & Ireland, Screwfix UK and Poland

4. Infrastructure & Processes

Unifying our processes and infrastructure will not only drive operating efficiencies but will also make us a simpler and more agile organisation.

First sharp decisions:

  • Pilot company-wide unified SAP IT platform in B&Q Ireland, then look to accelerate
  • Unify the process for managing £1.2 billion of goods not for resale process (e.g. store maintenance, cleaning and merchandising equipment)

5. People

To drive through these changes we have announced today a new leadership team and the need to move to a wider reorganisation of the structure of our teams in order to unlock the real potential of 'ONE' Kingfisher.

The new leadership team combines existing and new talent with cross-company and more focused roles. We are pleased to announce that Arja Taaveniku will be joining Kingfisher in early May as Chief Offer & Supply Chain Officer. She has 22 years of experience from the IKEA Group, including 13 years at IKEA of Sweden, working in various senior roles involved in developing, managing and supplying the global IKEA product range (e.g. she was Global Business Area manager for IKEA Kitchen & Dining from 2008 to 2012). Since 2012 she has been CEO of the Ikano Group.

We are also appointing three Operations Directors by format. Guy Colleau, currently CEO, Group Sourcing & Offer and former CEO of Castorama France, will become our Operations Director for Big Box (B&Q, Castorama, Koçtaş). Alain Souillard, currently CEO, Brico Dépôt International will become our Operations Director for Medium Box (Brico Dépôt). Steve Willett, currently CEO, Group Productivity & Development will become our Omnichannel Operations Director (Screwfix) as well taking the role of Chief Digital & IT Officer. Our operating company CEOs will report into our Operations Directors. We will update on the Chief People Officer in due course.

First sharp decision:

  • Finalise new leadership team and wider reorganisation structure

In summary, European home improvement is a great market with huge potential. We have a clear set of principles which will unlock the real potential of 'ONE' Kingfisher. We are organising ourselves very differently in order to effect the necessary change, we are getting on with this at real pace and we will provide further updates as the year progresses.

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