Kingfisher’s B&Q is giving J Sainsbury’s Homebase a pasting. Just days after Kingfisher announced that it would open 55 more giant B&Q Warehouse stores, J Sainsbury published figures last week showing Homebase’s like-for-like sales slipping.
The DIY market may be facing tough times, and this will inevitably hit B&Q as well. But observers believe it is better placed for long-term success than Homebase.
It is three years since J Sainsbury spent 290m on its purchase of the Texas Homecare chain, but the integration of the stores with Homebase has yet to prove its full worth.
“Homebase is in a bit of a corner,” says Corporate Intelligence executive director Robert Clark. “I am not sure it knows where it is going. It has been so concerned with bedding down Texas, it badly needs to look at the future and think in broader terms.”
In the long term, he says, it remains to be seen whether the programme to convert Texas stores to the Homebase format, due for completion by March 1999 will pay off.
B&Q and Homebase are staking their claims on different ends of the DIY spectrum; B&Q at the heavy, predominantly male-user product end. Homebase is positioning itself at the softer, “home enhancement” end of the market.
This week Homebase goes further down this route with the launch of an in-store interior design service in partnership with Dulux, called the Dulux Design Studio.
But presenting J Sainsbury’s results last week, with sales targets for the second half of the financial year of between one and two per cent for the supermarket chain, chief executive Dino Adriano says no targets had been set for Homebase. Instead, he says there will be an increased marketing push using direct mail.
Both B&Q and Homebase are operating within the same confines – a cyclical home improvement market that has reached its peak and is in decline.
On the surface Homebase’s interim results reflect the market – with like-for-like sales down by 0.9 per cent for the first five weeks of the second half of the year.
Kingfisher is not due to report to the City again until its third quarter results in December and analysts expect B&Q will also have suffered during that period.
But the bigger picture looks a lot rosier for B&Q. Its 1998 results show a sales growth of 19.8 per cent to 1.7bn with like-for-like sales up 12.6 per cent. The chain increased its share of the DIY market to 19 per cent. These results look strong compared with those of Homebase from April 1997 to April l 1998, showing sales growing 8.9 per cent to 1.2bn with like-for-like sales growing 9.6 per cent.
B&Q’s 750m roll-out of its Warehouse format – huge stores which range from 100,000 sq ft to 150,000 sq ft compared with the 40,000 sq ft of most DIY stores – rather than its smaller Supercentre stores, will fuel a shake-up in a market already undergoing drastic change.
Kingfisher originally announced there may be the potential for up to 75 Warehouse stores in the UK. But last year they contributed to more than a quarter of B&Q’s total turnover and now the roll-out rate will almost double to a target total of 125 by 2003.
Meanwhile, Wickes is being repositioned through its Crystal format stores, offering softer, decorating products as well as its usual building materials. This will put it into direct competition with Homebase. And Boots sold its 154 Do It All stores to Focus Retail Group in August, which is reviewing their market position.
Henderson Crosthwaite analyst Roy McConochie says B&Q’s 20 per cent share of the DIY market could be increased to 35 per cent with the expansion plans. But he is not so confident about Homebase. “It is continuing to close outlets. It is talking about enlarging or relocating but it doesn’t have a formula which can be driven out.”
Another analyst remains unconvinced by Homebase’s softer proposition and says the stores need time to evolve. “The problem in the short term is it may alienate the real DIY customers. There is a market for what it is doing, but it may be a little too early into that market.”
Corporate Intelligence’s Clark agrees: “It can’t get into bigger, bulkier products because of lack of size, so it has to redouble its efforts at the softer end and I’m not sure the market will go with that, considering the competition from Ikea and Habitat.”
J Sainsbury will use marketing to improve its position, with low budget in-store and editorial promotions, soft focus ad campaigns and its tie-up with Dulux. But this may not be enough to see off the threat from B&Q’s all-encompassing Warehouse format.