The road ahead in 2018

We’ve all read the articles that provide retail predictions for the coming year, this retailer’s going to grow, this one might find things a bit tough, online retail will continue to take share etc. They always make interesting reading, but rarely do commentators put their neck on the block and say what they really think is going to happen in 2018.

We talk to retailers, suppliers, investors and researchers on a daily basis and using this input alongside our detailed knowledge of the UK's Home Improvement and Gardening industries, we’ve been able to create our Insight DIY predictions for 2018; a retailer by retailer guide to the initiatives, developments and challenges that we’re likely to live through in the year ahead.

B&Q

With annual results due on 21st March 2018, our prediction is for B&Q to end their current year in a relatively good place, with a slight negative like for like, but an improved position on the -1.9% like for like experienced in Q3. If the business remains on track during 2018 to deliver the ￡500m of promised incremental profit by year 5 of Kingfisher One, then everything looks hunky dory.

The business will power ahead with its plan to implement the unified ranges dictated by Kingfisher, with the remainder of Gardening and Building Materials on their way in early 2018, following the Batteries, Lighting and Decorative Accessories we saw last year. Like any decent retailer, B&Q has spent years becoming an expert in category management, ensuring that every category and product performs to the max' and the retail space sweats. Poor performing products would quickly be exited and ranges, prices and promotional activity would be tweaked to ensure the maximum return.

As the unification roll out gathers pace, B&Q (Castorama & Brico) quickly realise that in some categories, elements of the unified ranges simply aren’t performing and what we refer to as ‘dark spots’ can be identified within each category – products, ranges and spec’s that countries took as part of the unified offering, that have been rejected by their customers.

The ultimate sin for any retailer is to have valuable selling space cluttered up with poor performing products and ranges. Unified or not, if a product doesn’t sell, it doesn’t sell and sometimes no manner of price changes or promotion will make any difference.

Before the end of 2018, to ensure that overall B&Q performance is not significantly derailed, we predict a Kingfisher task force will be put in place to identify the non-performing ranges and work on a plan to resolve the issues. Suppliers are asked to pull together proposals to replace the poor performing ranges and if you’re a supplier, you already know which unified products and ranges aren’t going to sell in your categories in 2018 and we suggest you start work now on a proposal to fill the dead space.

Read – An ‘intoxicating mix’

Bunnings Warehouse

With 15 pilot stores now up and running and another 8 conversions in the pipeline, confidence is up. The second smaller format pilot conversion Herne Bay opens in February, with pretty much the same layout and format as the Bunnings store in Bicester.

Read – It’s not a Bunnings and it’s not a Homebase

On 21st February, owner Wesfarmers announce their half year results including an update on Bunnings UK and Ireland performance. Following a poor Christmas trading period (partly due to the weather) and disappointing January, including weaker than forecast kitchen and bathroom sales, they announce a further deterioration in the combined Homebase/Bunnings business, with like for like sales more than 15% down. The senior team put on a brave face and explain that with the wind behind the pilot stores and weaker year on year comparatives to come, the situation will improve.

However, investors raise serious concerns as to whether the company will ever make a profit from the UK & Irish business, nervousness amongst suppliers increases and pressure mounts on new Wesfarmers CEO Rob Scott to review the investment.

Nevertheless, Homebase store conversions continue to plan with between 30 and 35 pilots open by the end of May. We see prices in the remaining Homebase stores continuing to increase, well above B&Q levels, as the team investigate every avenue to stem the losses.

On 7th June 2018 at the annual Wesfarmers Strategy Briefing, there’s little mention of Bunnings UK & Ireland other than the fact that Rob Scott has instigated a strategic review of the business and he announces that the plan to convert further Homebase stores has been put on hold until the outcome of the review.

At the Wesfarmers annual results briefing in August 2018 Scott confirms that following the strategic review, regrettably the decision has been made to withdraw from the UK and Ireland and an exit plan for the business is explained. Venture capitalists begin circling and B&M Bargains and The Range head the queue to pick up stores.

Wickes

Another year of store conversions and focused investment on customer service and their digital offering, sees them gain further ground on B&Q and Bunnings. At their final results on 28th February (a week after the Bunnings half year results) Travis Perkins use the opportunity to announce that Wickes is officially now the second largest home improvement retailer, having passed Bunnings. Their new 25,000 sq ft stores perform exceptionally well and Wickes realise that this is THE model for a DIY store of the future and a plan is expedited to identify more UK locations which can accommodate this size of store.

However, as they roll out their new Kitchen and Bathroom departments throughout 2018 and continue to take share from competitors, more and more questions are asked internally and by suppliers about who really is the Wickes target customer; general consumers or the trade? This identity crisis and the challenges it creates with regard to the look and feel of their stores, Wickes.co.uk and their communication plans will continue to trouble the business throughout 2018 and into 2019.

Screwfix

Just more and more and more new stores. The UK store opening plan is accelerated as Kingfisher realises that the shortfall in B&Q performance can now be made up by Screwfix growth. Overseas opportunities are also accelerated with the first Screwfix stores opening in France and Ireland by the year end. The three line whip that Screwfix must take Kingfisher unified ranges is relaxed, as early results indicate that the trade are not accepting well known brands being replaced with Dial.

Toolstation

As Screwfix grows, Toolstation grows, as their strategy to open next door to new Screwfix branches continues. Both companies kind of like this uncomfortable alliance, as it attracts more customers to a location and if Screwfix doesn’t have stock for a tradesperson, Toolstation probably will. Toolstation realise that they really should use the front of their stores to sell stuff and a plan to fit out the valuable space with supplier stands is implemented before the year end.

Wyevale Garden Centre

A year of pruning and chopping as the owners work hard to save the UK’s largest garden centre group from ultimate demise. Efforts to close and sell off some sites, improve service levels and reduce prices, to make them more competitive has some effect and their prayers for good weather and a bumper gardening season are answered, with a prolonged period of good weather which comes at just the right time for Wyevale.

Read – Buy tea and cake, but nothing else.

The Discounters

Wilko – no longer the force they once were, Wilko continues to struggle to make a profit in an increasingly competitive retail channel. As Poundland, Savers and B&M continue to eat away at their core market, concerns are raised as to the long term future of the business.

B&M – the relentless store opening plan continues and with a determination to be the lowest priced retailer in the categories where they operate, share continues to build at the expense of pretty much every other retailer. Further effort is put into building credibility in both DIY and Gardening and more big brands join the discounter party as they simply cannot afford not to.

The Range - more store growth from The Range as it realises it can take further share from established home and garden retailers wherever it opens a new store. At some point, the massive stock holding of these stores must surely catch up with them, but probably not for another year or so.

On-line Retailers

More growth, more share gain and more pain for the established bricks and mortar retailers. Whether it happens in 2018 or beyond, it's now only a matter of time before the established retailers decide to acquire the strongest online retailers in critical home improvement categories such as bathrooms, hardware, tiles and security. Grafton are already doing it, so are Travis Perkins and once the race to acquire the best online businesses really takes off, it's going to make this industry a very interesting place to be.

Read – Retail Armaggedon coming to a store near you.

If you've found this article of interest, you can find out more about the author Steve Collinge here and you can contact him at [email protected]. You can also sign up for our Insight DIY newsletter which is published once a week and covers all the very latest news, intelligence and insight on the UK's Home Improvement and Gardening industry. Sign up for the newsletter here.