• The ONS retail sales figures for July surprised on the upside and broke the ‘good month/bad month’ trend we have seen in the year to date. Year-on-year retail sales values (exc fuel) were up 4.3% and volumes (stripping out inflation) were up 1.5%. As usual, the media fell into the trap of majoring on the month-on-month figures (volumes +0.3%, values +0.7%) and erroneously construed robust figures as a slowdown. 
  • Ironically, fairly ordinary figures from Asda were greeted as something of a triumph. The business reported like-for-like sales growth of 1.8% in Q2, breaking a cycle of 11 successive quarters of sales falls going back three years. These figures need to be put into the context of the softest of year-on-year comps (-7.5% the previous year) and a market that is actually growing by ca. 4%. Some customers are returning, but the business is still losing market share.

Stephen Springham, Head of Retail Research:

The spotlight was very much on the DIY market this week, with the two leading players in the sector (Kingfisher and Bunnings) both reporting financial results. The figures were mixed to say the least, but need substantial qualification. These are two businesses at very different stages of their respective journeys.

In Q2, Kingfisher recorded UK sales of £1,332m, down 2.0% on reported currency and 2.1% on a constant currency basis. Screwfix was far and away the stronger performing business, with sales rising by 17.2% to £365m (+17.9% on a constant currency basis). In contrast, B&Q UK & Ireland reported sales of £967m, down 7.7% on a reported basis and 7.8% on a constant currency basis.

B&Q’s figures were not quite as disastrous as they may appear. The UK sales decline was largely down to the completion of the store rationalisation programme. Underlying performance was stronger than the headline figures suggest, although like-for-like sales were nevertheless in negative territory. The company itself fell back on the old chestnut of weather distortions, but the bigger picture is that it is only two years into its five-year ‘One Kingfisher’ transformation programme, which is a major restructuring project. Whilst its Big Four grocery peers are essentially on a similar journey by default (performance fell off a cliff and they had to react), Kingfisher is proactively repositioning itself to structural change in the retail industry. It will be some time before we can fully judge the results of this programme, but the proactive stance is at least the right one.  .

Meanwhile, Bunnings posted losses of £54m in the UK and Ireland for the year ending 30 June 2017, its first full year of trading in the UK having acquired Homebase in February 2016. Sales declined significantly (-14%) since the last full-year reported by its former owner (Home Retail Group). This was partially the result of exiting Homebase concessions and falling revenue from kitchens and bathrooms, following the decision to stop offering an installation service.

In stark contrast to Kingfisher, Bunnings is a newcomer to the UK and is radically reshaping the business it has acquired. The Homebase fascia is being phased out and the business is being repositioned away from soft furnishings towards the more traditional ‘hard’ end of the DIY market. The company has so far spent £19m on transition and restructuring costs, including concession exits and converting Homebase stores into the Bunnings format. 

The new Bunnings conversions have rightly drawn plaudits (as they should, for such a capital-intensive outlay) and the general direction of travel has been welcomed. But for me, this isn’t the issue. Shiny as the new stores look, the rest of the estate is very noticeably deteriorating at a rapid rate, if my many visits of recent months are anything to go by. Product availability, merchandising and basic retail disciplines appear to be in significant decline. At present, there are just four stores trading as Bunnings. A target of 15 to 20 pilot stores has been set by 31 December 2017, through a mixture of Homebase conversions and newly acquired premises. 

My feeling is that all the focus is on the conversions, while rest of the estate is suffering from neglect. Around 20 all-singing, all-dancing Bunnings outlets will not counterbalance 230 decaying Homebase stores. Bunnings may be earning plaudits as a shot in the arm for the UK DIY market and many may be inclined to turn a blind eye to its trading performance as it establishes itself in the UK, but that may change if the business doesn’t invest fully in its core. A retailer is only as good as its worst store, not its best.