Q&A: Kingfisher CEO Thierry Garnier on his ‘bullish mitigation’ of rising costs

‘Big ticket’ sales had a good fourth quarter, but for the year ahead, do you envisage the uncertainty in the economic outlook impacting big ticket items?

It’s two-fold. Up to now, we’re seeing a pretty resilient consumer in the UK, which was already the case last year. For us, home repair and renovation remain critical and very important. We’re seeing real wage growth, which explains this resilience.

We saw good big ticket sales in the UK in Q4—it was the first quarter when we observed this. Kitchen and bathroom sales were both positive. When we measure “order health” (how many orders for kitchen and bathroom we have), that business is also positive year-on-year.

We’ve said many times over the past two years that we believe there’s about a 9-12 month time lag between mortgage approval and the restart of kitchen and bathroom business for us.

So it’s probably early days to make any judgment after one quarter, but Q4 was good.

We’ve done a lot of range reviews. If you visit B&Q today, we’ve done complete range reviews of our bathroom offerings and are clearly improving the kitchen range as well.

So at least half, maybe slightly more than half of the improvement is due to our own work.

About Homebase, while it’s never great to see a competitor disappearing, for us this year it should be, overall, a small benefit. That said, we need to maintain some caution due to short-term uncertainty around employment and mortgage rates, but overall, we feel resilience and some reason to hope for more optimism this year.

“That’s my number one expectation, because it’s a very archaic and old model that punishes brick-and-mortar retailers in the UK”

With the spring statement coming tomorrow, what would your message be to the chancellor? Is there anything that would move the dial on improving customer sentiment among your shoppers?

I won’t comment on the Autumn Budget and the costs that we now face, which are significant additional costs like everyone else. For me, the main issue is business rates, which I know is a long-term story.

Looking at the news over the past few days, when you see that the government is ready to cut some of the taxes paid by American tech companies in the UK, some of which are retailers, I really hope that we’ll see a proper reform on business rates. That’s all the more necessary if some of our American company competitors will pay less tax.

The government introduced the idea of a new threshold at £500,000 for stores or warehouses that will pay more business rates. For a large number of retailers in this country, including us with many large B&Q stores, that means we pay more business rates than before.

That’s my number one expectation, because it’s a very archaic and old model that punishes brick-and-mortar retailers in the UK.

Are you concerned about the reports regarding the government potentially moving on the digital services tax to appease the US?

That’s not for me to comment on, that’s a global negotiation that everyone has to manage. I just think that for us retailers, we need a business rate reform. We are all tech companies investing in data, AI, and automation, and we need government support to be innovative and employ more people in this country.

For example, we’ve launched what we call “Hello Casto” and “Hello B&Q”—probably the first chatbot/AI assistant in the DIY world. We’ve also launched innovations like Lens, so if you go to specific stores, we can scan any product you bring in.

If you have a broken small device in your bathroom, we can scan it and tell you what it is immediately. There’s a lot of innovation with visual recognition, and we hope the government will support us and other retailers in this country.

What can you tell us about the sales uplift from the implementation of AI?

We’ve created an algorithm around product recommendation and personalisation online, and these product recommendation and AI personalisation tools have generated £100m in sales—largely additional sales.

“We want to maintain a strong price positioning. We also have our own private label products that are 15-30% cheaper than branded alternatives”

You mention you’re dealing with £145m in additional costs – can you give more detail on what these are? Will you be putting up prices or curtailing investment as a result? 

Of the £145m, £90m is wages inflation and general OPEX inflation, with a good part being minimum wages increase in the UK. For new taxes, there’s about £30m in the UK and about £15m in France for the equivalent of national insurance. There’s also about £10m for new packaging tax in the UK.

We plan to mitigate these £145m costs entirely through cost savings. We had plans back in October/November but decided to accelerate them. We’re reducing logistic costs by decreasing the size or number of our DCs in France, the UK, and Thailand. We’re negotiating leases with landlords and rolling out more self-checkout in stores to optimise productivity.

On the margin side, we’re implementing AI tools to improve markdowns. Our clearance and markdown marketplace is helpful because it offers better margins.

Regarding prices, keeping a good price index is critical for us as a mass market retailer. We want to maintain a strong price positioning. We also have our own private label products that are 15-30% cheaper than branded alternatives.

You’re closing or reducing the size of some DCs, why? Will that mean job losses?

First of all, it’s obviously the responsibility of every company to continuously look at efficiency, but there are many ways to be more efficient without impacting people. Over the past year we were negotiating 20-30 B&Q leases in the UK.

We were pretty late at Kingfisher five years ago in introducing self-checkouts. When you properly introduce self-checkout in stores, you need fewer cashiers, which means you can reallocate those resources to other parts of the store, like selling kitchen and bathroom.

On logistics across the group, especially in France and Poland and marginally in the UK, we can optimise our space.

I can’t give you more detail on specific locations at this stage, but we are optimising space.  

Kingfisher chief financial officer Bhavesh Mistry: “Two months into the business, I’ve gone out to see the stores and operations, and one thing that’s really struck me is how we’re changing the use of the back of the store. We’re taking out some centralised DC space because we’re using the space differently.

In B&Q, we’re carving out a dedicated space for TradePoint and for digital hubs, meaning portions of the store where stock is kept will be for customers coming for click-and-collect, as well as shipping from the store.

It’s more cost-effective because you’re closer to where the end customer lives, and it’s a more effective way to drive sales density. It’s a creative way to make better use of the store while using less DC space and better serving our customers overall.

Will there be a reduction in staffing hours or overall headcount as a result of cost efficiencies?

First of all, we are planning to open stores and create more jobs linked to that. Screwfix will probably create 400 jobs, and 200 Homebase jobs. We are also opening a few more B&Qs in 2025.

A lot of the cost program we’re mentioning involves self-checkout, lease negotiation, supply chain productivity, as well as growth, marketing, better negotiation with suppliers in the Far East, and our marketplace which provides better margins. We’re also working on retail media.

There’s a lot going on outside of purely staff productivity. There will be a little bit of that, but overall, I think we will be flat or net positive on headcount.

On outlook, it’s slightly weaker on the profit guidance or profit range expected by analysts. You’ve talked about some of the reasons, but it seems at odds with the slightly optimistic tone suggesting it’s not all bad. How should we think about that guidance outlook? 

That’s a fair point. On one side, we want to be bullish on mitigation. We believe we’ll be able to mitigate entirely the additional costs. We had a one-off this year on the B&Q business rates—we had a smaller refund. But overall, we are relatively bullish on our cost mitigation.

However, at this point of the year, we want to be relatively cautious on market scenarios. We’ve given the market scenario for the UK, France, and Poland. For the UK, the low case is flat sales and the high case is low single-digit growth. For France, we’re more pessimistic—we see the best case as flat and the worst case as low to mid single-digit decline.

Ultimately, we’re relatively bullish on the actions we can take, but at this point of the year, we prefer to be cautious on the market. Therefore, we’ve decided to be relatively cautious in our profit guidance, which as you said, is slightly below current city expectations because we haven’t given any guidance up to now.

Also remember that in our plan, we aim to gain share in all our markets.