Handy Men: Kingfisher assembles international management

As Kingfisher chief executive Ian Cheshire boarded a flight to the US last week, he could look forward to a break with a sense of achievement.

When he was appointed to the job in January, Cheshire shouldered responsibility for a turnaround of one of the biggest names in the industry. Key to success would be the creation of a top team of directors. As he jetted off to the sun, Cheshire had just revealed details to the City and had pulled not one, but two rabbits out of the hat.

As Kingfisher’s three-year, seven-point turnaround strategy begins, its management has been strengthened by the hiring of Ikea UK boss Peter Hogsted to head its international division and the appointment of DSGi finance director Kevin O’Byrne to the same role at the DIY giant.

The appointments followed those earlier this year of Superdrug’s Euan Sutherland to lead Kingfisher’s flagship UK business and established Kingfisher stalwart Philippe Tible to head its French division as chief executive.

All will sit alongside Cheshire on Kingfisher’s new retail board. The reinvigoration of Kingfisher is only just getting under way, so how pivotal are the latest appointments going to be in Cheshire achieving his objectives, which include driving B&Q’s profit, expanding in Eastern Europe and reviving Chinese operations?

Cheshire thinks they are crucial. “I couldn’t imagine a stronger bunch of people – especially when facing the potential challenges that lie ahead,” he says.

“We’ve never been run as a single retail business before, with one team at the top. But now we will be able to share group objectives. And it’s a good sign that we can attract people of this quality – they are top-drawer appointments and I’m dead chuffed.”

Cheshire has worked for Kingfisher since 2000 and was formerly chief executive of B&Q, which he steered from a DIY to a Do-It-For-Me positioning. He took over Kingfisher in the wake of profit warnings and problems at its various businesses – a far cry from its heyday of the 1990s, when it also owned Woolworths, Superdrug and Comet.

In April 1999, the business reached its highest valuation to date at£17.2 billion and was one of the most successful retail groups in existence. Since then, it has shed all its businesses other than its core DIY operation, most notably B&Q.

After Kingfisher announced the appointments last week, its share price leapt almost 18 per cent to 109.5p, but that was still far below the 317.25p recorded in October 2004 – the highest since the final demerger in September 2003.

The problems of B&Q in the UK has contributed to the fall in value. The DIY chain has been suffering since 2006, when like-for-likes dropped 7.8 per cent and the pattern has continued ever since.

For the 13 weeks to May 3, Kingfisher’s UK arm – including B&Q, Screwfix and Trade Depot – posted a 7.9 per cent fall in like-for-likes. Sales began to slip at B&Q’s Chinese business too, with like-for-likes plummeting 15.3 per cent in the first quarter of this financial year, resulting in losses of£8 million. Kingfisher attributes last year’s “disappointing performance” in China to short-term market factors, such as new supplier and property transaction regulations, but five loss-making Chinese stores will be closed this financial year.

Landsbanki analyst Paul Deacon says that, despite problems, China offers a great opportunity. “The Chinese market is very fast-moving and needs to be managed very carefully,” he explains. “But there’s an awful lot of potential there and Kingfisher has built itself an important foothold.”

With effect from this autumn, Matt Tyson, who has spent 24 years at Kingfisher and is stores director of B&Q, will become chief executive of B&Q’s Asia division. But it is Hd who will have overall responsibility for the retailer’s international operations. The Dane is a successful retailer with a strong track record and, at Ikea, he gained a reputation as an excellent leader who is personable and motivating.

Kingfisher should benefit from Hd’s international expertise. At Ikea, he was responsible for Poland, the Czech Republic, Slovakia, Ireland and Hungary. Cheshire says: “Peter brings with him lots of energy. He’s a really experienced retailer with a truly international outlook. He knows the reality of retailing.”

Hd tells Retail Week that he will relish the international role. “The new position will be an exciting challenge,” he says. “I know the Polish market particularly well from my time at Ikea. DIY is increasing there year on year. Home improvement is facing challenges in the UK, but it’s the opposite picture abroad, where there are huge growth opportunities.”

With Hd’s Polish experience, Kingfisher is well-placed to bolster its position there. The group has big plans for the country, as well as Russia and Turkey and plans to open 80 more stores in the three countries over the next four years, bringing the store count to 145.

Kingfisher’s ambitions for France, where it operates 190 stores under its Castorama and Brico D鰴t brands, are less grand, however. With like-for-like sales across the two chains dropping 1.5 per cent in the first quarter of this year, Kingfisher has cautious plans to increase space by 5 per cent in the next financial year.

This seems prudent because some analysts believe that, as the UK recovers from the economic downturn, France could be hit just as hard.

“They could be looking at the same downward risk on their French numbers,” says Investec analyst David Jeary. French boss Tible will play a crucial role in improving joint sourcing between B&Q UK and Castorama France, which Cheshire describes as a key priority of his centralisation strategy.

Kingfisher’s new strategy also involves driving B&Q’s profit, which, according to the retailer, will be the “largest single driver of improving shareholder value”. O’Byrne is likely to play an important part in helping in that. Of O’Byrne, Jeary says: “I’ve always rated him. He has the international experience that goes with DSGi and is used to looking at cost and margin management, so it’s an appropriate appointment.”

Not everyone is convinced that O’Byrne will be Kingfisher’s knight in shining armour, however. Deacon says: “He’s a clever guy, but there’s only so much influence a financial director can have on how well a company performs – or even a chief executive, for that matter.”

Deacon believes it is the more uncontrollable issue of the economic downturn that will dictate the direction of most companies and many in the City remain cautious on Kingfisher’s prospects. Jeary believes “it’s not a given” that shareholders will start seeing better returns on their investments in the near future.

What happens in the UK will prove pivotal to the company’s revival, though and if Sutherland fails to breathe life into B&Q, some believe there is little hope that the group will ever regain its once-enviable market share. “B&Q is a very big piece of the business,” says Deacon. “Its success is an all-important component.”

Kingfisher aims to increase B&Q’s operating margin from the 3.3 per cent recorded in its 2007/2008 financial year to 7 per cent in the coming years, by improving sales density, gross margins and achieving lower operating costs. Deacon believes part of the answer lies in product prices. “The most pressing issue is the gross margin and part of the response should be to put prices up to protect profitability in the short term.”

According to Jeary, part of the problem with B&Q is the look of some of its 323 stores. “Too many of them look under-stocked and undermanned. It doesn’t need more space, it needs more operational efficiencies applied consistently across all the stores.” However, some warehouse stores have undergone a successful revamp and the group plans to roll out the new formats as part of its revival plans.

There is hope that the DIY market will recover. While Deacon says that the duration of the overall downturn is uncertain, he believes the low profitability of DIY is cyclical and, although “it will probably go down further, it will fix itself”.

Cheshire’s overall goal remains unchanged. “We want to deliver value over the next three years – particularly in the tough retail climate at the moment,” he says.

There are some niggles about his seven-point plan, however. “It’s not particularly new, nor is it a guaranteed success,” says Jeary. He argues that the more centralised system of governance that Cheshire is creating could have its downsides. “It’s a double-edged sword,” adds Jeary. “It could be bad for morale if, at a local level, people feel that they’re not allowed to influence their own business.”

As Retail Week went to press, Kingfisher was preparing to issue a trading update. It was expected to be pretty downbeat. But Cheshire believes he has put in place an appropriately international, experienced team to achieve his strategy over the next few years and return Kingfisher to its former glory.