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Castorama is Now Kingfisher's Biggest Problem

Castorama 725 x 500.jpg

In this morning's Kingfisher full-year results, the business confirmed its intention to address the problems it is experiencing with Castorama's weak performance in France.

Kingfisher France

Sales decreased by 3.4% (-3.7% LFL) to £4,272 million with improved sales performance at Brico Dépôt offset by a weak performance in Castorama. Both businesses were impacted by national demonstrations in Q4 which resulted in difficulty accessing stores and some temporary store closures. The estimated negative impact on France LFL was c. 3% in Q4 and c. 0.5% in FY 18/19.

According to Banque de France data*, sales for the home improvement market were down 0.5% and continue to be volatile from month to month.

Castorama total sales declined by 7.3% (-7.1% LFL) to £2,246 million reflecting weak footfall, price repositioning, the impact of transformation-related activity and national demonstrations in Q4. LFL sales of weather-related categories were down 6.5% and sales of non-weather-related categories, including showroom, were down 7.4%.

Brico Dépôt total sales grew by 1.4% (+0.4% LFL) to £2,026 million reflecting a good performance of the new unified & unique ranges and supported by investment in marketing (representing the first year of LFL growth since 2011/12). Q4 performance was also impacted by national demonstrations.

Across the two businesses space remained broadly flat, with Brico adding two net new stores and Castorama closing one net store.

France gross margin declined by 60 basis points with an increase at Brico Dépôt offset by a decrease at Castorama. The gross margin at Castorama was impacted by logistics and stock inefficiencies resulting in a c.80bps impact on France gross margin.

Retail profit decreased by 35.2% to £209 million. This reflected weak sales, a decrease in gross margin and higher costs, including additional marketing investment and higher digital costs.

Kingfisher stated:

In France, whilst Brico Dépôt’s sales and gross margin improved, with clear benefits from the transformation plan, Castorama’s performance has been weak, due to lower footfall, price repositioning and transformation-related activity (including logistics & stock inefficiencies).

While there is no quick fix, the new management team has implemented a recovery plan that we expect to deliver a sustainably improved performance:

• In the second half of FY 18/19 Castorama accelerated its move to an everyday low price (EDLP) strategy. Price positioning has improved over the year and is now only slightly higher than the market;

• Progress was made in reducing Castorama’s stock position which is helping to address logistics & stock inefficiencies;

• Variable cost reduction initiatives were implemented including a 5% reduction in employees (FTE) (FY 18/19);

• The rollout of our unified IT platform is substantially complete;

• In 2019 Castorama will benefit from new unique ranges, increased customer marketing and an improved digital experience. These actions are ongoing and the benefit is still to be realised. Encouragingly customer perception improved at Castorama, with net promoter score (NPS) showing a clear increase in the second half of FY18/19.

Source : Insight DIY & Kingfisher PLC

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20 March 2019

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