IT’S the day after a rather disappointing trading update from Kingfisher, and shares in Europe’s biggest home improvement retailer are still falling. Not by much – they’ll finish the session about 1 per cent lower – but that’s on top of a near 5 per cent decline the previous day, when the owner of B&Q unveiled a drop in margins for the first quarter of the year.
Longstanding chief executive Sir Ian Cheshire admits there’s probably been a bit too much discounting, or as the analysts put it, pricing has been “indecisive”. But there’s nothing inconclusive about Cheshire this morning, who’s taken the chance on a trip to Glasgow to politely yet firmly call for a No vote in the forthcoming referendum.
“If there is a Yes vote we are still going to be here, but we definitely want to put across the view that we prefer a strong Union,” he says.
“We are not going to take 33 B&Qs and fly them down south, but it will create extra friction and cost. On a business analysis we see only the risk, but not any real benefits.”
Independence could throw into hibernation Kingfisher’s investment plans north of the Border, where the group has 33 B&Q stores and 25 Screwfix outlets serving primarily trade customers. All things being equal, Screwfix would roughly double in size in Scotland during the next few years, in line with the group’s broader expansion plans.
“It would affect our view on investment,” Cheshire says. “We would have to pause our investment programme and see what all of these changes would mean for the business before we made any further decisions.”
That, however, is not the limit of Kingfisher’s makeover plans in the UK. Cheshire’s comments on the perils of independence – widely and rapidly reported throughout the media on Friday – came as the retail boss toured what could soon be the model for every B&Q in Britain.
The new Port Glasgow store covers just 50,000sq ft internally, less than half of the size of the chain’s largest warehouses. This is in keeping with the strategy outlined by Cheshire, who has said he can sell the same amount of goods with 20 per cent less space than B&Q currently occupies.
Subject to planning permission, floor space in some shops will be sub-let to various supermarket chains. Non-competing retailers like Maplin or Furniture Village have also taken over some surplus space. Where appropriate, B&Q could relocate as leases on larger premises expire.
Cheshire emphasises that it’s not a quick fix, with the entire programme likely to take three or four years. During that period, the group will also begin re-configuring the layout of its stores into something very similar to that at Port Glasgow, which has been open less than three weeks and represents “the next evolutionary model” for B&Q.
“It is early days, but we are seeing some very encouraging signs,” Cheshire says.
“The first thing you notice coming in is that you walk straight into a very decorative sort of area, with paint and wallpaper and so on. It’s more of a room setting and less walking straight into racks and racks of tools.”
It seems an appropriate set-up for B&Q, which generates about 80 per cent of its sales from DIY, and just 20 per cent from trade – pretty much the exact opposite of Screwfix. On the whole, there will be less heavy-duty warehouse racking so the softer end feels “much softer”, though the heavy end “will get heavier”.
On the subject of the previous day’s trading update, Cheshire is fairly phlegmatic: “You produce a 20 per cent profit increase and like-for-like sales growth of nearly 10 per cent and the share price goes down – there isn’t much you can do about that.”
It wasn’t that the markets were punishing a recovery, but rather that most believed the recovery should have been more robust. Kingfisher’s sales took a hammering amid horrid weather during the first quarter of 2013, which should have flattered comparisons with this year’s figures.
Cheshire says trading in Scotland swings more on the weather than in other parts of the UK.
This is particularly true of B&Q, which he says has been trading strongly in recent weeks. Screwfix, however, has been less robust. The chain’s latest regular monthly survey of trade customers painted a more subdued picture in Scotland than elsewhere in the UK.
“There just seem to be slightly lower levels of activity, and slightly lower levels of confidence,” Cheshire said.
“Is that perhaps anything to do with independence? It is impossible to say.”