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DIY retailers shedding store space

Verdict's Matthew Walton discusses the need for DIY retailers to strike the right balance between reducing the amount of store space and maintaining sales levels...

Homebase aims to close around 40 stores as leases expire by February 2017, in yet another example of big box DIY specialists actively reducing their store portfolios. Reducing total sales space is a sensible strategy with multichannel becoming more important, but retailers must ensure that they balance reductions without losing sales.

The leases of 65 Homebase stores are set to expire and the retailer is using this opportunity to exit underperforming space, although it may also leave profitable stores if it cannot agree favourable terms with landlords.

Both Wickes and B&Q are also reviewing their portfolios, with Wickes announcing in September 2011 that it aims to shrink its footprint by 1.4 million square feet. Both retailers have sub-let space to other retailers.

Verdict's Annual Forecast 2017: DIY & Gardening research indicates that larger DIY superstores will be operating from a much smaller footprint in five years' time. From its peak in 2010, space among the DIY superstores (B&Q, Homebase, Wickes, Focus and independents with a floor space over 15,000 sq ft) is set to decline by 9.8% by 2017. While the collapse of Focus is included here, this space reduction will be achieved through both store closures and retailers subletting space.

Retailers are lowering their cost bases and many are being far more ruthless with regards to underperforming space. Retailers simply cannot retain unprofitable space, with margins under greater pressure. A host of big box retailers are reporting that online has become a more important channel. Carpetright has been able to exit some stores as more shoppers use its website for pre-purchase research, with remaining stores having larger catchment areas.

While online's proportion of the market in both DIY and furniture & floorcoverings is set to increase, growing by 1.1 and 2.8 percentage points respectively between 2012 and 2017, encouraging footfall and pre-purchase research will be the main use of the online channel for these retailers. For example, despite Homebase gaining a greater proportion of sales through online, this percentage is still small, at 3.5% at the end of H1 in 2012/13.

Sub-letting would be attractive to many specialists as it allows them to reduce costs while retaining a presence in the area. With the right partner, sub-letting could also help to drive footfall, improving sales while boosting profitability and margins.

However, larger DIY specialists need to strike the right balance between reducing the amount of space while maintaining sales levels. They must be careful as to which products they retain and how they lay out stores, so that customers, especially trade shoppers, can find what they are looking for quickly. They must also develop supply chains to anticipate demand for certain products and pull stock from larger stores to complete orders at smaller stores, in a fast moving hub-and-spoke model.

Source : Matthew Walton – Verdict

16 November 2012
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