An Easter battle come rain or shine

Brits are famous for talking about the weather, but DIY retailers take it to another level.

Get a bunch of them in a room and there will be talk of little else. Especially at Easter, which is as important to them as Christmas is to other retailers.

It is little wonder why they monitor slight changes in the climate - business depends upon it. Last Easter they enjoyed warm weather, which stimulated sales across home improvement categories. But this year weather is not expected to be quite as good and those are not the only clouds on the horizon.

2010 so far has been tough for DIY store groups. The snow at the start of the year spelled disaster: having knuckled down and survived what was a hard 2009, within the first few days of 2010 heavy snow came and decimated DIY sales.

Even as the snow melted, the evidence shows that trade has not picked up much since. The BRC-KPMG Retail Sales Monitor found that in February “decorating and outdoor products suffered, with many projects put off until more clement weather”.

In the run-up to Easter, DIY retailers are pulling out all the stops to take market share, not least market leader B&Q, which has sparked fears of a price war as it slugs it out with arch-rival Homebase in TV and press ad campaigns.

It seems 2010 is shaping up to be a highly competitive and tough year. Ian Cheshire, group chief executive of B&Q owner Kingfisher, warns: “We are not assuming any help from the market. We are very cautious. Gardens are four to six weeks behind. People are holding back. They have not been spending on gardens.”

Cheshire believes anxiety about the election and any future tax rises also means consumers are less willing to spend. “Overwhelmingly the thing we are seeing is uncertainty,” he says, adding that 2010 is too hard to call. “I don’t think until we get to May we will know if a broader pattern is emerging.”

Although Cheshire can be happy with B&Q’s performance in 2009 - when revenue grew 2.6% to £4bn, like-for-likes increased 1.3% and retail profit rocketed 79.4% to £195m - he is nervous about the housing market.

Cheshire says while it has recovered from its “real low”, the “key limiting factor is the availability of mortgage finance - that is one of the big unknowns”.

Geoff Cooper, chief executive of Wickes owner Travis Perkins, agrees: “Having dealt with 2009 and breathed a sigh of relief, it would be tempting to think the only way is up. We think that would be wrong. Forecasting is even more difficult now than it was in 2009, with the prospect of an election which is getting ever harder to call.”

Too close to call

Homebase managing director Paul Loft admits he is finding it hard to second guess the market this year too. “It is very difficult to call - fuel bills are coming in, there is debt from Christmas, a change in government, taxes going up, interest rates going up, VAT possibly going up and unemployment.”

Focus chief executive Bill Grimsey notes: “Since the snow has left temperatures have been very low. The gardening season has not kicked off - the grass has barely started to shoot.”

Making matters worse for some is the price battle between B&Q and Homebase. The two are going head-to-head: B&Q price-checked thousands of products and claimed it is cheaper than Homebase on 90% of its 1,748 decorating products.

Homebase retaliated, with ads saying it is cheaper than B&Q on 1,016 interior decorating products.

Such aggressive posturing does little to help the industry, according to Grimsey, who has ruled out Focus competing in the battle. “The consumer is the only winner in a price war. It is degrading the industry. We won’t be brought into a fight we won’t win,” he says.

Onlookers believe that while Homebase is in the firing line, Focus, and to some extent Wickes, could get caught in the middle. Cheshire, who has revealed B&Q’s value campaign Do It For Less will run all year, has refused to rule out going after other retailers deemed competition.

“We sell in 17 different categories and there are 13 key competitors, so it is horses for courses,” explains Cheshire. “We check 4,000 to 5,000 prices a week, and are using [the data] the same way Asda and Tesco do. We want to shout about our prices. We will look at the competitive environment and decide where we think we can gain traction with consumers with the prices we already have.”

Caught in the crossfire

Singer Capital Markets analyst Matthew McEachran says: “Advertising spats are not new. This latest development may help to kick-start the DIY season now that weather conditions are more normal.

“Advertising value credentials at this point in the cycle should be well received by consumers, but it could end up being confusing. Given perceptions of value, and helped by the Homebase price match guarantee, this campaign could potentially end up favouring Homebase.

“However, assuming that the campaign doesn’t escalate into a price war, which has wreaked havoc on industry margins in the past, these wars of words are unlikely to do much harm.”

Loft says: “We check our prices - we are better against the competition than we were a year ago. Customers are noticing we have better deals.”

While Cooper believes Wickes is somewhat protected because of its emphasis on the tradesman compared with its rivals, he believes the scrap could cause trouble. “We don’t like it when any competition starts shooting at each other because we do sometimes get caught up in the crossfire,” he says.

Wickes managing director Jeremy Bird says because of Wickes’ high proportion of own-brand, and the fact it is acknowledged that it has, on average, lower price points than rivals, it would be hard for B&Q to take it on over price.

Although Bird says getting involved in the price tit-for-tat is “not the right thing for us to do”, he warns that if any of its rivals takes aim at Wickes it would consider responding.

“Never say never,” he says. “This price war is not limited to B&Q and Homebase. It is a market event. There is a danger consumers get conditioned to waiting for discount weekends. It is not good news for anybody.”

The retailers have not only been promoting their value credentials, but have also been furiously discounting - B&Q offered a string of price cuts leading up to Easter.

If an outright price war does erupt, one thing is certain - margins would take a battering at one of the worst possible times and few would be able to afford it. Even if such fears are unfounded, the DIY sector looks as if it could still be in for more stormy weather.

Homebase: Revitalising Online

Home Retail Group’s DIY business has this year revamped its Homebase Value range in order to attract cash-strapped shoppers in the downturn. Managing director Paul Loft says early figures are encouraging, “beating expectations, with exceptionally good sales in some products”. He expects to add more lines to the range, “beefing it up” in mid-summer.

Homebase will open no new stores this year, but will put efforts into revitalising its online operations, rolling out check-and-reserve as well as its separate networking site, Getintogardening.co.uk, designed by creative agency Meteorite. “It will be massive in home improvement retailing,” says Loft, who adds that Homebase may look at launching a similar networking website for decorating.

The retailer says its relationship with loyalty card scheme Nectar is a big part of its future, helping to pull in more customers and gain market share. Loft says Homebase will strive to exploit the data it has to drive sales.

Homebase has also entered the bedrooms category and is revamping its showroom offer with installations in bathroom, kitchen and bedroom being a key strategy.

It will also continue to target its core customer, including the affluent, female home improvement and gardening enthusiast.

B&Q: Targeting Tradesmen

After kick-starting a turnaround a couple of years ago, B&Q is now looking to the future and has put in place a five- to 10-year growth strategy under Kingfisher group chief executive Ian Cheshire.

B&Q has placed a big emphasis on the tradesman this year. It is rolling out its TradePoint business to 118 stores by the summer with an investment of £26m.

B&Q calculates the trade market to be worth about £20bn, and it therefore represents a “massive opportunity” says Cheshire.

The retailer is developing its group sourcing capabilities, leveraging benefits from its other businesses such as Castorama France. Cheshire says: “We are rewiring the beast to share common sourcing opportunities.”

B&Q is also piloting eight new categories, including storage boxes and home cleaning, and will continue to focus on pushing its green credentials, which Cheshire says is a “significant and growing part of the business”. B&Q last month launched eco shop-in-shops at two of its biggest stores.

It has also begun a Dragons’ Den-style innovation programme, led by Kingfisher group innovation director Andy Wiggins. Staff present ideas to the business and, if given the thumbs up, they receive funding and support. “The ingenuity people are coming up with is fantastic,” says Cheshire. “Home improvement has become slightly staid. You have got to create a flow of interesting product. It is our job to innovate.”

Focus: Five-Step Plan

Focus is in the midst of a dramatic turnaround plan that involved a life-saving CVA last year, enabling it to shed 38 non-trading stores, and staving off certain administration.

After securing refinancing from the bank, the retailer has embarked on a plan to revitalise the business based around five key areas - its brand proposition, defining the customer base, refocusing the range, re-energising staff and reformatting stores. Its new store format - Project Genesis - features wider aisles, shop-in-shops and clearer signage with a friendly tone. Year-on-year gap growth at present is running at 22%.

Focus is also testing an in-store coffee shop and has just rolled out 60 how-to guides penned by DIY expert Julian Cassell.

The retailer last year launched value range Payless, which it says is beating internal expectations, as well as a more upmarket range, “World of”. It has launched its first new bathroom range in more than a decade and will relaunch its website this month, which will feature a new delivery tracking system for customers to monitor their orders.

Focus also plans to open smaller format, 15,000 sq ft stores, which Grimsey says will change the future of DIY retailing.

Wickes: Spreading the Word

Wickes has benefited from the collapse of MFI. Its kitchen and bathroom categories have performed so strongly that it has decided to open standalone stores selling just those two product lines.

In the past year it ramped up its offering and has also benefited from a foray into advertising after launching its first-ever TV campaign at the end of 2008.

Travis Perkins boss Geoff Cooper says the ads focus on the product quality. “Up until last Christmas Wickes was DIY’s best kept secret,” says Cooper. “Sales in the past 18 months have been spectacular, but we are going to have to spend a lot of money to establish the brand further.” Wickes spent £20m on media last year.

The retailer has also launched a next-day delivery offer for bulky goods, which Wickes managing director Jeremy Bird believes is a world first. Wickes will hope to build on its success in 2009, when pre-tax profits in Travis Perkins’ retail division - which is largely made up of Wickes, but also includes Tile Giant and Tool Station - rocketed from £10.2m to £57m.