Ever since Sainsbury’s Homebase made the mysterious move of acquiring Texas Homecare for £290m in 1995, it has struggled to make up ground on DIY front-runner B&Q. While B&Q was seeing roaring trade through its Warehouse store format in the mid- to late-Nineties, Sainsbury’s was left pondering how to assimilate Texas into its existing Homebase store portfolio.
But last week, Homebase raised the stakes in the battle for DIY retail supremacy. The chain went on the offensive with the launch of a transactional website, Homebase.co.uk. Homebase believes the online market could provide part of the backbone to a long-term strategy aimed at closing the gap between the two DIY giants.
Some industry observers believe Sainsbury’s is priming its DIY division for a sell-off to enable it to concentrate on turning round the fortunes of the company’s ailing supermarket chain. Others suggest Homebase could be readying itself to follow B&Q into Europe.
Initially, the £10m website Homebase.co.uk will be aimed at the UK market. But the DIY chain also says its online venture could be extended into European markets. The company says it aims to break even by 2002. It also predicts that supply chain savings of up to £30m over the next three years can be made.
Homebase claims to be offering a first in the DIY online market. Homebase managing director Kate Swann says: “We intend to be the UK’s number one online retailer in the home and garden sector within a year. We won’t be simply providing an online catalogue, as our customers want help, advice and inspiration at any time of the day.”
Not only is the site fully transactional, offering free delivery on orders of more than £150, it also operates as an information portal, offering advice on DIY and interior design. Initially all deliveries will be made through the Post Office’s Parcelforce, but Homebase is also in talks with suppliers about delivering to customers directly.
But Stephen Robertson, managing director of DIY e-commerce at e-Kingfisher, says the Homebase proposition is nothing new. He says: “B&Q Direct was set up to take our Warehouse concept online. We developed the idea of using information experts who provide customers with advice on anything from gardening to interior design.”
He adds: “The site has been important in guiding traffic into our stores. B&Q Direct is not a separate venture, but is complementary to what we already do.”
According to Homebase, the UK online DIY/gardening market is worth £8m. Forrester Research forecasts that this will grow to £224m by 2005. And by the same year, Forrester believes the European online market could be worth as much as £600m.
But Homebase has a long way to go if it is to make up ground on B&Q. According to retail analyst Verdict Research, B&Q has a 23.8 per cent market share, which is almost double that of Homebase with 12.3 per cent.
B&Q last year reported profits of £400m. And at the time of the announcement, Kingfisher also unveiled plans to develop an e-tail strategy across the entire Kingfisher Group, with the launch of e-Kingfisher. This included plans for a B&Q transactional website, DIY.com, to be launched in spring 2001.
The launch of DIY.com will be accompanied by a £10m ad campaign. Robertson is in talks with a number of agencies, which include B&Q’s agency Bates UK.
But Sainsbury’s has also been busy arming itself for the impending cyberspace battle. In July, Sainsbury’s poached ex-Kingfisher proposition development controller Beatrice Lafon to head its Homebase e-commerce venture. She joins 50 other e-tail specialists recruited by Sainsbury’s to bring its online strategy in line with competitors.
David Stoddart, City analyst at Henderson Crosthwaite, believes Homebase’s head-start gives it a fighting chance. “Given both brands are more or less equally strong in the UK, there is a good chance for Homebase to get ahead,” he says.
Online DIY market is untested
But to date the DIY online market remains relatively untested. Stoddart says: “Until we can compare the sites, the product ranges, marketing and positionings we won’t know how things will shake down. Getting there first might not be enough.”
There are other DIY retailers working hard to prevent being left behind. Focus Do It All says it was the first UK DIY chain to launch a transactional website. The company uses an adapted store in the Midlands as a distribution centre, promising delivery through Parcelforce within three working days. A charge of £4.99 is made on all orders. Similarly, DIY chain Wickes, which – despite being preoccupied with fighting off a hostile takeover bid from Focus – launched a transactional site in June.
But Lafon denies Homebase has been left behind. She says: “We are the first to offer both advice and products to buy online. We have the ambition to become the number one site for all home enhancement needs.”
On paper B&Q looks the most qualified to trade online. Significantly, analysts point out, it has the experience of running its mail order and online business Screwfix. Aimed at the building trade, the venture is not altogether different from its DIY proposition.
Indeed, Robertson says the purchase of Screwfix in July last year has helped Kingfisher to formulate an online strategy for B&Q. He says: “We have learned a great deal from Screwfix in terms of logistics and managing fulfilment.”
Henderson Crosthwaite City analyst Roy McConnicky believes Kingfisher’s experience in the catalogue business may give B&Q the edge. He says: “Homebase is having to start from scratch, whereas B&Q already has a tried and tested infrastructure.”
While Robertson says that the success of Screwfix – which had a turnover of £60m in the year January 1999 to January 2000 – makes him confident that the online DIY market has huge potential, others are less convinced.
Retail Intelligence senior retail analyst Richard Perks says: “I’m not sure the online market will make much of a dent in the overall DIY market. It will work when the customer knows exactly what he wants, as with measured timber or cement, but with other products, as with clothing, it could be that the customer needs to make careful decisions first hand.”
Stoddart also questions how the leading DIY retail brands will convince their customers of the benefits of buying online. He says: “The so-called successful e-tailers, such as Amazon.com, have been sold on the lower cost of shopping on the Internet compared with the high street.
He adds: “But if established retailers start undercutting their own stores they risk undermining their brands and creating a gap between customers. Other than convenience, conventional retailers have little else to sell their e-commerce strategies on.”
But it seems that offering low-cost deals to Net customers is a strategy Homebase is prepared to risk. Lafon says: “We will be offering special offers on the Net that will not be offered to store customers.”
Home shopping services are vital
Despite his air of caution, Perks insists that both B&Q and Homebase are right to pursue aggressive online strategies. He says: “Every major retail player should have a home shopping service. Conventional retailers are increasingly seeing the Net as complementary to their stores. A website is a way of building the brand and should be seen as another form of mail order.”
Lafon says she is convinced that the reason for B&Q having the largest market share is simply because it has more stores. She says: “This will change when we complete our store building programme this year.”
Following the success of the B&Q Warehouse format, Homebase announced plans to open ten new stores this year. Four will be between 60,000 and 100,000 sq ft. Another four will be 100,000 sq ft and over.
Lafon adds: “While we may be the number two player in stores, we will become number one on the Net.”
Analysts also believe that depending on its success, online venture Homebase.co.uk may also be used to test out the viability of the Homebase brand in Europe.
Lafon confirms that interest from overseas will be monitored with a view to expanding the Homebase brand. She says: “One of our medium-term objectives is to become a European player.”
But once again B&Q is ahead of the game. In 1998 B&Q merged with the French DIY market leader Castorama. And alongside plans to launch an equivalent transactional website, Castorama.fr, in France, Robertson says: “We are clearly considering opportunities throughout Europe.”
But Lafon denies B&Q’s position with Castorama will deter Homebase from looking at opportunities in the French market. She says: “When you talk about the European market you are really focusing on France and Germany. So France will obviously be a possibility.”
Henderson Crosthwaite’s Stoddart points out: “Whether sensible or not, retailers are becoming increasingly global in their outlook. The big guys believe in globalisation. And it makes sense to try it first online rather than move in and try to set up its operations wholesale.”