Kingfisher is the largest home improvement retailer in Europe and the third largest in the world. Kingfisher is a pure DIY business and is a market leader in the UK with B&Q (figure 6).
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Introduction Kingfisher is the largest home improvement retailer in Europe and the third largest in the world. Kingfisher is a pure DIY business and is a market leader in the UK with B&Q (figure 6). The retail industry has grown over the past 10 years, as total growth since 1995 is 38% at current prices. DIY retailers accounts for under 4% of total retail sales, which will increase as consumers interests with their homes and owner-occupation continues to absorb growing amounts of disposable income. The DIY sector is dominated by three players who account for 90% of the sales; B&Q, Focus and Homebase. Table 1 Table 1 shows a number of factors of why the industry has benefited in the last five years Buoyant housing market (figure1) Increasing consumer debt Greater interest in the home which has been influenced by DIY/makeover programmes and home interest magazines (figure 2) The development of warehouse stores (superseded super centres) by B&Q has helped Kingfisher make DIY more accessible and available to consumers worldwide Demand has increased by manufacturers developing products for the untrained DIY man Wide spread use of the internet has encouraged internet sales Consolidation within the industry which shifts the industry market structure from monopolistic to oligopoly The DIY market is changing due to retailers expanding from electrical goods and decorative products to garden centres, lighting and showroom products such as kitchens, conservatories and bathrooms. Table 2 Table 2 shows the different strategies implemented by Kingfisher and how these strategies have benefited their performance. Strategy Advantages Price Reverse campaign Lowers the prices for customers as the prices of many products in 2004 were at the same level as in the early 1990s. Strengthens the group's every day low pricing stance (EDLP) Every day low pricing (EDLP) campaign Changed the whole industry by initiating the warehouse store format supported by excellent customer service Helped purse a high growth strategy in order to dominate the industry and price competitors out of the market. ...read more.
Share Market Analysis Kingfisher share prices have changed during the last five years due to its restructuring strategies of demerging from Woolworths and Superdrug into a DIY firm. Figure 12 in the appendix explains the details of the changing share price movements shown in figure 3. Investment Ratios Earning per share (EPS) has decreased to 8.3 in 2004 from 9.2 in 2003, due to the rights issue in February 2003 which increased the number of shares but didn't provide any capital. This affected the retained earning because it makes the EPS difficult to interpret as it will increase even though there hasn't been a corresponding increase in the underlying performance. However, the profit figure has been influenced due to a loss on disposals of certain home improvement businesses of £53.8m in 2004. EPS had fallen in 2002 from 32.9% to -9.8% due to a dramatic fall in its profits due to the loss on disposal of Superdrug of £284.8m and creative accounting. Looking at the trend of EPS over the five years, the significant dips are caused by losses on disposals which have led to considerably lower returns for shareholders. Dividend per share fell from 13.14 in 2003 to 7.97 in 2004 shows a fall in confidence for Kingfisher's future prospects. Price earning ratio (PER) has increased to 31.45 in 2004 from 25.45 in 2003 which is well above the industry average of 14.22. This shows that the market expects Kingfisher to have a stronger growth in future earnings and dividends than previous years and its competitors. This may indicate an over-valued share price as the market expects a future take-over bid for Kingfisher by an American firm. It's PER relative remained constant but rose from -1.02 in 2002 to 2.21 in 2003 which clearly shows its strategic success of being a leader in the general retailing sector although differences in the treatment of tax by companies can cause distortion to the ratio. ...read more.
This has allowed 'shopping around' which has made the industry more competitive. Screwfix direct is an internet company which is growing out of the catalogue business and has increased Kingfisher's revenues and customers. The product offer concentrates on the smaller elements of ironmongery, and e-commerce is thought to account for about 10% of sales. This has helped Kingfisher become a market leader in the DIY sector. B&Q also has a website www.diy.com which works with the stores to allow customers to plan purchases as they wish * Research And Development It has allowed advanced products to be created for consumers which have increased the market share and given Kingfisher a competitive advantage over its competitors. New processes have been implemented to create cheaper products. This has resulted in reduced costs and allowed B&Q and Screwfix Direct to reduce its prices, which affects its profit margins. Therefore, giving the company a competitive advantage over its competitors. SWOT Analysis Strengths * Land established while competition in disarray * Group management now able to focus on DIY since demerger of other interests * Able to stock over 40,000 lines compared to 18,000 in super centres * Now has full control of Castorama * International business with the scale advantage of being double the size of nearest European competitor * Able to offer lower prices than its competitors due to dominance in key markets Weaknesses * Delay in establishing unified management * After recent closure programme, exposure to some key markets non-existent Opportunities * Further integration of international product offer and buying * Further international expansion can keep the company growing in terms of revenue and market share Threats * Unwelcome attentions of a (US) predator * Possibility on pressure in consumers' disposable income from higher taxes, interest rates and pension contributions. * Castorama still vulnerable to concerted attack * Slowing down of the UK economy can cause slower consumer spending on home improvement * Possibility of a new and stricter government on environmental issues that can cause higher operation costs ...read more.
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