Kingfisher boss Ian Cheshire is fond of boasting that little Screwfix makes more money than Homebase, but the risk is that one day Screwfix will make more money than B&Q.

Kingfisher boss Ian Cheshire is fond of boasting that little Screwfix makes more money than Homebase, but the risk is that one day Screwfix will make more money than B&Q.

The multichannel Screwfix DIY operation for tradesmen is one of the jewels in Kingfisher’s crown and in the year just ended it will have made over £40m in operating profit, over 20% up on the previous year and representing a healthy margin of 7% on sales of £575m. So Screwfix is not that little anymore and annual profits of £50m are well within its sights.

By contrast, the operating margin at Homebase in y/e February will be under 1% on sales of some £1.43bn, despite its greater emphasis on furnishings and the “lighter” side of DIY. So it’s not really saying much to say that something makes more money than Homebase, as, alas for Home Retail, Homebase makes hardly any money.

What of other DIY retailers? Well, Travis Perkins yesterday declared profits of £65m for its Consumer DIY division, a healthy 5.6% margin on sales of £1.15bn. But that is not a “pure” reading on Wickes, its “heavy” DIY focused chain, as the division also includes the fast-growing Toolstation (their version of Screwfix) and Tile Giant (the Topps Tiles clone).

And B&Q itself? Well, operating profits will have fallen to some £190m in y/e January and the market leader is not exactly at death’s door as the operating margin is still as good as 5% on sales of some £3.74bn. And there is a big difference between £190m and £40m. But the profit trend at B&Q is not Ian Cheshire’s friend. B&Q’s LFL sales have been negative for seven quarters in a row and blaming “bad weather” for the failure to beat weak comps is starting to wear a bit thin, although better summer weather in 2013 would do wonders for the gardening and seasonal business.

The DIY market is, of course, not exactly booming. The likes of Travis Perkins and Carpetright have been trying to talk up the modest uptrend in monthly mortgage approvals etc, but there is absolutely no prospect of a return to the heady, debt-fuelled levels of activity of the late 1980’s. The availability of some very cheap five-year mortgage deals is helping activity pick up a bit from very low levels, but job insecurity and the need for hefty deposits is still crippling the first-time buyer market, which is always key to building up housing transaction chains.

And there is nothing like moving house to generate spending on DIY, because the repair and maintenance market is very dependent on good levels of discretionary spending and consumer confidence. Just as “making do” with an old carpet or an old sofa is many people’s natural reaction to these times of austerity, it is easy to put off mending the gutter or doing something about that damp patch in the conservatory.

If the DIY market isn’t going to pick up, then the question arises of why B&Q have as many as 350 stores in the UK. It is a little known fact that B&Q has more UK selling space than M&S and Boots put together.  The DIY market is one of the few non-food markets not penetrated by the supermarkets and online penetration is not massive either, so it has some structural advantages, but does B&Q really need 27m sq ft of selling space?

Cheshire should be relieved that the housing market in Ireland is in a much worse state than the UK, as the bubble was much bigger there, but it is interesting that collapsing sales and high store rents forced B&Q to recently put its loss-making 9-store business in Ireland into administration.

As a microcosm of what could happen in the UK, if the DIY market takes a significant turn for the worse (when mortgage rates go up again?), it is instructive to look at what is happening to B&Q in Ireland. B&Q may be able to walk away from some of their liabilities there, but downsizing B&Q in the UK won’t be so easy, with so few out-of-town retailers taking on space.

A limited recovery in the market over the next year or so may yet bail out B&Q to a degree, but the long-term trends are not encouraging, with a new generation of consumers growing up who want “Do It for Me” rather than DIY. Dealing with the over-capacity in the UK DIY market will be a good test for Kingfisher’s future management.

About Nick Bubb

Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos “Retail Think-Tank”.