Keep the international faith

It wasn’t a huge surprise that the press focused on China when Kingfisher reported last week.

Despite some solid overall numbers, including much-reduced debt, good cash generation and market share gains in the UK and France, China remains such a “sexy” market that our plans to rationalise there were bound to grab headlines (“Chinese burn” anyone?).

For the record, what we announced were plans to go from 63 stores to 41, revamp the rest and downsize those where we have too much space. We have already opened our first new-format store in Putou, Shanghai, which is trading well and will be used as the base for the rest.

Once we have minimised the problem by exiting loss-making stores that have been struggling in a less buoyant property market, we will have a solid – and still market leading – base from which to grow again.

The point I’d like to stress to other retailers is that despite these bumps in the road, emerging markets like China, Poland and Russia remain great opportunities.

Aside from macro-factors, the key opportunity is that most markets are still fragmented, leaving room for modern retail formats to take share. China, for example, still has a fast-growing consumer economy with an increasing home-owning middle class, mostly served through traditional markets.

China’s home improvement market is already bigger than the UK’s (£29bn vs £26bn). While the housing market has slowed sharply it’s not all doom and gloom, as seen in Shanghai, where a single house has just sold for a record Yn250m (£25m).

We’ve made some mistakes in China; I make no bones about that. But we have learned from them

It is the same story in Europe’s emerging economies, where some relatively robust countries such as Poland are being unfairly tarred with the same brush that is being applied to places like Ukraine. 

In Poland GDP is still forecast to grow by 1.5 per cent this year – a figure the UK would love. Polish banks are more conservatively run and don’t have the same toxic assets others are lumbered with. With more than half the population under 50 and so many of the famous Polish builders now back, it is a very attractive place for home improvement retailers to be.

It’s similar in Russia, where flat to modest GDP growth is forecast in 2009. Taxes are low, consumers want more modern retailers and the long-run outlook for consumer spending is good. Our Russian like-for-likes (up 25 per cent last year) are testimony to all that.

Of course, retail is detail and you have to keep your offer bang on target to succeed. We’ve made some mistakes in China; I make no bones about that. But we have learned from our mistakes. We plan to fix them and grow.

One of the positives to come from our China experience is that it has brought our senior management team even closer together. Our top team, including the heads of the UK and France, have visited China as a team, developed the turnaround plan as a team and will oversee its implementation as a team.

That spirit of collective responsibility and ownership is really important and will stand us all in good stead as we face these uncertain times.