The humble Polish plumber is in shorter supply in the UK these days. His departure from credit-crunched Britain reflects depressing economic prospects here, but at least it is bringing some benefit to one of the UK’s biggest retailers – Kingfisher.
The group’s Castorama chain in Poland is taking increasing spend from returning builders and others, who have provided a fillip to a business already thriving in one of the European economies that has so far proved the most resilient to economic turmoil.
Castorama has been in Poland little over a decade. In 1997 the chain’s chief executive Claude Acquart got off a plane with only a suitcase and a limitless stock of ambition. Today, says Kingfisher group chief executive Ian Cheshire, Castorama Poland is one of the jewels in the retailer’s crown. Kingfisher’s two biggest stores globally by sales are Castoramas in Warsaw, each turning over about£50 million a year – about twice as much as a big B&Q in the UK.
Despite economic uncertainties, the reasons for Castorama’s Polish success are easy to see in Warsaw. New apartments and business premises have sprung up all over the city as affluence has increased since the collapse of the Berlin Wall in 1989 and EU membership in 2004. This year, Polish GDP has grown by 5.5 per cent compared with an EU average of 1.2 per cent.
The mass movement of people to the UK has helped, as workers sent money back to their country. Now, in increasing numbers, they are moving back to buy their own homes and take advantage of the growing economy.
The Polish DIY market is contested by international rivals such as Leroy Merlin and Praktiker, as well as Kingfisher. But Castorama is in front and last year generated retail profit up 41.8 per cent to£87 million on sales of£703 million. Castorama has become identified with the DIY retail sector in Poland to the extent that Polish subtitles in a US film replaced Home Depot with Castorama.
Castorama set itself objectives such as never to be beaten on price, to set standards in service and ensure top-notch availability. Those priorities have powered performance but it took some time for local shoppers to understand the offer.
Polish customers originally expected promotions, for instance, so Castorama had to educate consumers about what Every Day Low Pricing (EDLP) meant. Shoppers have since embraced the approach enthusiastically and Cheshire says Castorama is “probably the most pure EDLP of any of our businesses”. Castorama does not print prices in its catalogues and even displays rivals’ catalogues – which do include prices – in the foyers of its stores, so confident is it of beating competitors.
Shoppers are a mix of DIYers and professional tradesmen, giving shops a feel that blends wholesale and retail. Customers often come with the builder who will do their work for them and construction materials are a core part of the business.
Changing shopper habits and the benefits of Kingfisher’s group ownership have also boosted business. A few years ago customers would only have bought white paint. Now, all sorts of colours are in demand. That has enabled Castorama to leverage the potential of the Colours own-brand in paints.
Quick off the draw
Demand is on the up for other Kingfisher labels, such as MacAllister power tools, which returning Poles are familiar with from B&Q. “After buying one product, customers are buying others,” says Castorama operations director Pawel Walus. Cheshire adds: “Own-brand has been a key part of making the margin perform.”
In addition to the core Castorama chain, which numbers 44 stores at present, Kingfisher has begun opening smaller Brico Depot shops. Brico Depot stores are easier to open because they are not subject to the same building permit requirements as the big Castorama sheds and have allowed the retailer to pile extra pressure on rivals by opening nearby. “If Castorama is our aircraft carrier, Brico is our destroyer,” explains Cheshire.
There is no hiding from the fact that Poland may be in for tougher times as the credit crunch takes a global toll. Polish customer confidence has fallen from its high in October last year, but despite this Cheshire and Castorama’s management remain confident in business prospects.
Although credit conditions are tightening, the Polish economy is less driven by credit than many others. It has less exposure to foreign funding than neighbouring Hungary, which has been hit hard by the crunch, and Polish banks notched up record profits in the first half of this year.
“Although we’d expect the Polish market to slow down relative to the growth there has been, there’s a lot of opportunity. The strategic requirement in Poland is to keep going,” says Cheshire. He also expects Poland to perform better than France, which will perform better than the UK, during the recession.
Cheshire says that the lessons learned in Poland – which, along with Turkey (see right), is now run by former Ikea UK head Peter Høgsted under the “other international” division – are being brought back to the UK and have laid the ground for expansion in other East European markets such as Russia. Over the next four years or so, he expects to more than double store numbers in Poland, Russia and Turkey, adding about 80 shops overall. Lithuania and, to a lesser degree, Ukraine have also been identified as potential new markets in Eastern Europe.
Importantly, growth there is likely to be replicated elsewhere in the longer term. India also remains of interest to Kingfisher and the retailer has given some thought to new business models that might work there, such as franchising. “I’m quite interested in that,” says Cheshire, because it would allow entry into certain markets without tying up Kingfisher’s cash to the extent necessary with company-owned stores.
Last year, Kingfisher’s overall international sales accounted for more than half of the group total. The trend looks likely to continue as British shoppers cut spending as the downturn bites.
Cheshire will be pleased that although the Changing Rooms phenomenon may be a distant memory in the UK, it remains popular in Poland.
Turkish joint venture is delight for Kingfisher
Another corner of Eastern Europe that Kingfisher is making inroads into is Turkey, writes Nicola Harrison.
On an analyst trip to its financial heart, Istanbul, Retail Week experienced first hand why the UK retailer has identified it as such a lucrative market.
Along with its operations in Russia, Kingfisher regards Turkey as a “small but fast-developing business”. Its Koçtas stores, which are a joint venture with Turkish industrial and services behemoth Koç Group, look like a Turkish version of B&Q – same orange branding; staff adorned in orange aprons; and, of course, the product ranges.
But on closer inspection there are notable differences. For instance, many of Koçtas’ stores are located in upmarket shopping centres, such as the 8,000 sq m (86,114 sq ft) store in Sisli, a district of Istanbul. Its offering is noticeably softer than B&Q’s, which is fitting given its neighbours in the shopping centre – Mothercare, Debenhams and Topshop. The ceiling is low and softer categories are pushed to the front. And there are a lot of them, including, even, a dressing gown display. Product-wise, it feels more like Homebase than B&Q.
Tellingly, it has increased the proportion of females in its customer base from 5 per cent in 2001 to 56 per cent today.
More than 15,000 customers come through the store’s doors each week, spending an average of US$50 (£31) each time, serviced by 230 staff selling 25,000 SKUs. Employees are paid more than the minimum wage and are well turned-out and helpful. Koçtas general manager Alp Önder Özpamukçu says Turkish people “really want to work for Koçtas”, and that to have a job with the company is quite an aspirational career path to choose.
The out-of-town Koçtas stores are very different animals to their shopping centre counterparts and are more in keeping with the UK B&Q layouts. The 12,000 sq m (129,171 sq ft) store has a heavy emphasis on the showroom, which, says Ozpamukçu, “makes a big difference between us and our competitors”, which include Bauhaus, Praktiker and Ikea. Here, the average spend is£45.
Koç Group says it benefits from Kingfisher’s product know-how and this can be seen in store, where there is, unsurprisingly, overlap between the two chains. B&Q’s own-brand Colours paint products, as well as its own-label Performance Power and MacAllister power tools, are all sold in Koçtas stores. However, the Turks are stealing a march in one area – Koçtas has an in-store TV channel, running ads for the retailer, as well as promotions, which is an avenue B&Q has yet to venture down.
Koç Group is ranked 186 in the Global Fortune 500 and accounts for 14 per cent of Turkey’s GDP. Its consolidated revenue for last year was US$39.5 billion (£24.3 billion). So Kingfisher can feel secure in its financial robustness, and can benefit from its knowledge of the Turkish market.
However, the country cannot remain sheltered from the knock-on effects of a weakened global economy. While Ozpamukçu is bullish about Koçtas’ future – noting that Turkey has remained relatively unscathed from the global financial crisis thus far – he says there are indications that the country is beginning to feel the burn. The Turkish Consumer Confidence Index, for example, has taken a tumble, falling from 90 last year to its present standing of between 50 and 60.
Despite this, Koçtas is confident it can weather the storm and is pushing ahead with its store expansion plans; it wants 50 stores by 2012. By the end of this year it will operate 21.
And it has reason to be confident. Turkey has a population of 70 million people and, according to research, 87 per cent of them are aware of Koçtas and what it does. It has 44 per cent share of the organised home improvement market and 5 per cent of the whole market.
As the volatile markets in the UK threaten, it will be these strong international footholds that help British companies like Kingfisher to weather them.
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