Kingfisher seems to have hit a few bumps in the road as it ploughs ahead with its five-year transformation plan, masterminded by group boss Véronique Laury.
Now in its second year, Laury’s ‘One Kingfisher’ vision is beginning to come to life on the shopfloor.
Having successfully laid the foundations by consolidating its supplier network and opening four prototype stores, the business has started to make some more visible changes.
As well as clearing out old ranges and re-merchandising its new ones, Kingfisher is also in the process of introducing a unified IT platform across the group.
“Exiting old ranges has gone smoothly, the long process of introducing its new unified ranges has caused some stock availability issues”
But the Screwfix and B&Q owner said the volume of change taking place has caused “some business disruption” during its first quarter, when group sales slipped 0.6%.
While exiting old ranges has gone smoothly, the long process of introducing its new unified ranges has caused some stock availability issues in its early stages.
There’s a long way to go before the plan – aimed at delivering £500m of sustainable annual profit uplift by the end of the five-year term – reaches its supposedly profitable denouement.
So, is the disruption cause for concern or just par for the course?
How disruptive is One Kingfisher?
Laury insists it is short-term pain, long-term gain for the business as her One Kingfisher plan progresses.
She said that in France – where some its new ranges have launched – early customer reaction is “encouraging”.
Laury adds that the new IT platform, which is now live in nearly a third of its Castorama France stores, will enable the business to build a much stronger digital offer.
B&Q, the first business to install the platform, reported strong online growth this quarter – up 31%.
But there’s at least another three years yet to go, and as Barclays retail analyst Boris Vilidnitsky points out, the stock availability issues related to the plan will “likely continue as the transformation progresses”.
Still, in his view, “the company’s transformation plan makes sense in the long term”, despite the road ahead being a long one.
Investec analyst Kate Calvert, however, is less optimistic.
Dubbing the update “disappointing” Calvert says Kingfisher’s valuation is “not compelling enough”, given the short-term execution risk behind the major business changes.
“It is hard to run a business and implement this degree of change without impacting the customer experience”
Kate Calvert, Investec
“It is early days and this business disruption could increase,” she warns.
“It is hard to run a business and implement this degree of change without impacting the customer experience.”
Calvert also points out that whether or not the One Kingfisher strategy will work is yet to be seen, and is not likely to become apparent until the group’s full-year results in March 2020.
The resolute Laury maintains that the business has set itself up well for its transformation. She is “confident in the size of the prize” and Kingfisher’s ability to deliver.
But there are other disruptions beyond Kingfisher’s control that threaten to pour cool water on Laury’s ambitions.
France, where like-for-like sales at Kingfisher’s Castorama and Brico Depot fascias dropped 4.3% and 6.8% respectively, has been unstable economically in recent months.
According to Banque de France data, sales in the overall home improvement market were down 1% during the period, during which the country also faced the distraction of a presidential election campaign.
“There’s anecdotal evidence to suggest a dip in consumer confidence may have started a slowdown in big-ticket home improvement sales”
Despite new president Emmanuel Macron’s victory over far-right rival Marine Le Pen providing some stability, analysts believe the underlying economic market in France will remain fragile for the time being.
And while the group’s UK division outperformed its other markets during the quarter, there’s anecdotal evidence to suggest a dip in consumer confidence may have started a slowdown in UK big-ticket home improvement sales, and the likes of Topps Tiles have suffered as a result.
The economic environment is volatile and is likely to remain so while the terms of Brexit are negotiated over the next two years.
Marry the competitive environment heating up – with the entry of Bunnings into the UK DIY scene and online disruptors such as ManoMano making waves – Laury’s renovation project will not be smooth sailing.