Analysis: Why Kingfisher’s success is built on more than just lockdown headwinds

DIY giant Kingfisher registered record profits and sales over the past year as consumers turned their hands to home improvement projects and reimagined their spaces for the “new normal”.

Home and DIY has been tipped by experts as a booming market, but the return of other discretionary spending categories – including holidays, leisure activities and clothing – threatens to slow its growth.

Moreover, macroeconomic and geopolitical issues are driving up inflation, cost pressures and energy prices, creating an uncertain environment – especially for big-ticket spending. 

While Kingfisher acknowledged that such issues could hamper some areas of its business, chief executive Thierry Garnier remained bullish about its future prospects for growth and the resilience of the sector in the face of overarching economic challenges. 

Navigating inflation

Across the retail sector, products have been hit with inflation due to rising energy costs, the price of certain raw materials, higher shipping costs and wage inflation.

The DIY sector is not immune to this, with the added cost-of-living squeeze impacting the discretionary spend allocated to big home-improvement projects.

GlobalData predicts that the sector will grow 1.2% during the year, but this will be driven by price rises as opposed to increased consumer spending.

“We anticipate a harder year for DIY specialists in 2022 as demand for home improvement slows down now that consumers are at home less and as high inflation constrains consumers’ budgets,” says GlobalData retail analyst Kunaal Shah.

“The Bank of England forecasts inflation to hit 7% in the first half of 2022, which will lead consumers to focus their spend on essentials, hitting demand in the home-improvement market over the course of the year.”

Garnier, however, is confident that Kingfisher can leverage its large supplier base to ensure its prices remain low.

“Clearly, inflation is a topic on almost every business and consumer’s mind at the moment, but we believe we are very well positioned to navigate the current environment,” Garnier tells Retail Week.

The DIY giant, which operates the B&Q and Screwfix fascias in the UK as well as Castorama and Brico Dépôt across mainland Europe, monitors its price index against its closest competitors on a weekly basis, ensuring that it remains competitive in the market.

Kingfisher also believes it can leverage its scale to engage with suppliers, using strong relationships to achieve better prices and better container availability.

Garnier maintained that prices would not rise for Kingfisher’s range of own-label products and inflationary pressures on consumer spending would not affect the business going forward.

Kingfisher surveys suggest that home-improvement projects will, in fact, continue in the near term with the current showroom order book for B&Q and Castorama France 72% higher year on year and up by 79% compared with pre-pandemic levels.

“In crisis time, DIY is a good place to be. When you want to save money, you do things yourself”

Thierry Garnier, Kingfisher 

Smaller DIY projects may also be more resilient as customers look to make little improvements to their spaces, continuing a hobby they picked up in lockdown.

This also shows in Kingfisher’s customer surveys, which find that future spending intent is currently higher than pre-pandemic levels.

“In crisis time, DIY is a good place to be,” Garnier says. “When you want to save money, you do things yourself. When looking at the past economic crises, DIY is a fairly resilient industry.” 

Mintel retail analyst Marco Amasanti adds that many of these smaller improvements are “ultimately ringfenced by necessity, such as repairing broken fences, replacing tools, etc – this will nullify at least some of the fallout in the coming year”.

Own-brand growth

Kingfisher’s own-label range, or own exclusive brands (OEB), offers another reason why Garnier is confident the business can weather the perfect storm of inflation.

Currently, 45% of group sales came from its OEBs, adding 32 new and redeveloped lines over the past year across the group. 

On average, Kingfisher’s OEB products are priced at 15% to 30% less than the branded equivalent, offering a value option to appeal to price-conscious consumers. 

Garnier also predicts that value fascia Brico Dépôt will soar in popularity in the coming year.

In addition, he believes that products associated with sustainability and energy-saving will become more important to consumers.

Kingfisher currently has 40% sustainable products in its OEB ranges, with a new target set for 60% by 2025.

Sustainability in the group is broken into two categories: recycled and sustainable materials used to create products, and products that can help consumers live more sustainably.

The latter includes ranges such as LED bulbs, water-saving taps and loft insulation – all of which are lower-cost options to save on bills.

Kingfisher has also started its first circular-economy projects at both Screwfix and Castorama France, refurbishing and reselling power tools second-hand.

Amasanti believes the second-hand economy will be important in the DIY sector moving forward as it offers “newer means of affordability” for customers.

He suggests upcycling and repairs will be big projects for cash-strapped consumers, with cost-saving ways to complete them also high on the agenda.

“Indeed, 19% of consumers would be interested in purchasing second-hand tools or equipment, while 14% would find buy-now, pay-later schemes, such as Klarna, useful for buying materials,” he says.

“The housing market is relatively dynamic. We have been recruiting a lot of new DIYers and we know that energy saving will be a priority this year”

Thierry Garnier, Kingfisher

Buy now, pay later options would also attract younger DIYers, which Kingfisher and its competitors have flagged as a new loyal demographic during the pandemic.

“In the medium term, what we see through customer surveys is very new and strong supportive trends,” Garnier says. “We see that working from home is here to stay, which always means more spent on home improvement. 

“We see that the housing market is relatively dynamic. We have been recruiting a lot of new DIYers and we know that energy saving will be a priority this year.

“We need to acknowledge that there are uncertainties but we are focusing on our value. On balance, we are comfortable with our future.”

While it is clear that some factors could slow down Kingfisher’s growth, the business feels at home in the current market conditions and is well positioned to navigate the short- and medium-term challenges being seen across the industry.

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