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International DIY News

Kingfisher Makes Changes To French Management Structure

Castorama 725 x 500

Kingfisher has updated on progress in relation to its performance and profitability plan for the French business:

Background

In June 2020, we set out a plan to ‘fix’ strategic and operational issues faced by our banners in France, emanating from previous years. This included putting in place new leadership and teams, making significant improvements in our technology, supply chain and logistics operations, and restoring more local autonomy to manage the business needs and requirements of our banners in France (including broadening product ranges, implementing new trading approaches, and investing in price at Brico Dépôt). Castorama also closed nine underperforming stores.

In September 2022 we said that the ‘fixes’ in France were largely complete – resulting in clear differentiation between Castorama and Brico Dépôt, more competitive prices, better product availability, higher levels of customer satisfaction, and a significant improvement in our sales performance relative to the market (as measured by Banque de France* data). These measures also enabled us to successfully navigate the banners through the COVID pandemic, as well as more recent macroeconomic and consumer challenges.

Over the last four years we have also put into place more strategic initiatives, consistent with our ‘Powered by Kingfisher’ strategy, to move forward the long-term customer propositions for Castorama and Brico Dépôt. These included accelerating the e-commerce capabilities of our French banners (including the creation of a ‘hub’ store network to facilitate faster fulfilment, and introducing more C&C options) and further differentiating Castorama and Brico Dépôt’s offer through leveraging Kingfisher’s OEB capabilities. In addition, we have started to develop the trade customer proposition at both banners, trialled new compact store formats, started a new retail media business, and developed more comprehensive in-store and digital services for our customers, including through the use of Kingfisher’s data and AI capabilities.

Our French banners have also been active in structurally lowering their cost base across multiple areas, including in supply chain and logistics, property, GNFR and overheads. Over £150m of cost has been structurally removed from the businesses over the last four years. Furthermore, against the backdrop of an uncertain consumer environment in more recent times, they have continued to actively manage variable costs to better align to trading conditions. This has included strengthened actions around staff costs and discretionary spend, which in H2 23/24 resulted in an operating cost reduction of 4.4% YoY, despite significant pay rate and energy inflation.

Taking France to the next level – a new plan focused on simplicity, performance and profitability

With our banners well positioned both strategically and operationally, we are today announcing a new plan for Castorama and Brico Dépôt, designed to drive the next level in our performance and profitability in France. The plan is centred on three focus areas:

  • Simplifying the France organisation,
  • A clear and actionable plan for Castorama, and
  • Building on the exciting potential of Brico Dépôt 

These actions support a medium-term retail profit margin target for France of c.5% to 7%, and are explained in detail below.

Simplifying the France organisation

With clear strategies in place for Castorama and Brico Dépôt, the time is right to simplify the structure in France to make banner decision-making more agile – similar to the proven model in the UK & Ireland:

  • Effective from the end of April 2024, the ‘France’-level management structure will be dissolved, allowing our banners more autonomy and speed to make operational decisions and allowing for more streamlined head office operations

  • France-level joint operational responsibilities including human resources, finance and supply chain will be transferred to the two banners where appropriate

  • A limited number of cross-banner functions will be managed across banners to maintain joint synergies where efficient; for example, in the area of retail media
  • Leadership changes:

Alain Rabec, CEO of France, will retire at the end of September 2024. Alain joined Kingfisher in October 2019 and has overseen the significant progress made by both banners described above. We thank Alain for his many contributions to Kingfisher and wish him well

Pascal Gil will become CEO of Castorama France at the end of April 2024. He will remain a Kingfisher Group Executive team member. Pascal started his career at Castorama France, before leading Brico Dépôt Iberia and then Brico Dépôt France, before taking the role of CEO of Castorama Poland in April 2022. Details of Pascal’s successor as CEO of Castorama Poland will be announced in due course

Laurent Vittoz will continue as Managing Director of Brico Dépôt, supported by Alain Rabec who will remain on the Kingfisher Group Executive team until his retirement

A clear and actionable plan for Castorama France

Despite making significant progress over the last four years, Castorama’s retail profit margin % remains lower than the Group average, and also that of Brico Dépôt France. We have developed a plan with three core priorities to boost Castorama’s performance, strengthen its resilience, and drive up its profitability over the medium term: (1) restructuring and modernising the store network, (2) improving operating margin efficiency and (3) growing sales densities.

1) Restructuring and modernising the store network

  • Rightsizing – we have identified several ‘big-box’ stores across the low-performing Castorama portfolio where we have surplus space. This is based on our analysis of store economics, but also demand in the local area, proximity to other stores, and the number of stores we need to achieve national coverage for home deliveries, as part our e-commerce strategy. Over the last two years we successfully rightsized two Castorama stores with encouraging results. These rightsizings resulted in an average space reduction of c.25% (taken over by discounter retailers, thereby driving incremental traffic), sales density improvements of c.40%, and a c.600 basis points improvement in the stores’ retail contribution margin % and an anticipated payback on investment within four years. We will commence the rightsizing of three Castorama stores in FY 24/25

  • Modernising store formats – we successfully carried out a pervasive Castorama store refit in FY 23/24. Over a six-month period between September 2022 and March 2023, we modernised the Castorama Englos store by reorganising the layout from 130 aisles to just six key areas, making the customer journey simpler while creating a fresh and ‘open plan’ store environment, with a focus on design inspiration and home improvement projects. Significant improvements were also made to instore digital and fulfilment services, the trade customer experience, and showcasing our energy efficiency ranges and services. We expect payback of our investment within four years. The refreshed Englos store has delivered strong results including significantly improved sales growth, strong ‘bigticket’ sales, higher customer traffic and NPS scores, and in FY 23/24 became one of Castorama’s top 10 performing stores. We are planning to repeat the refit successfully applied at Englos to one further Castorama store in FY 24/25, with six additional low-performing stores benefiting from a refresh

  • Brico Dépôt transfer – over the last three years, Castorama has successfully converted two of its low-performing stores into the more profitable Brico Dépôt format. Our Pontault-Combault conversion saw a reduction of selling space of c.50%, a more than doubling of sales densities and a significant uplift in profitability. While these conversions have delivered encouraging results, there is a limit to the number of Castorama transfers that can be completed given the size of Castorama stores (relative to Brico Dépôt) and the proximity to existing Brico Dépôt stores. We are planning to transfer one Castorama store to a Brico Dépôt format in FY 24/25
  • Franchising – the franchise model is commonplace in the French home improvement industry, and in French retail in general. Under the model, Castorama would transfer the management of store operations to a franchisee partner, along with the right to use the Castorama brand, in exchange for a 17 royalty fee. The franchisee would also leverage Kingfisher’s capabilities, including its store technology systems, leading OEB product ranges (via wholesale), and Group buying scale. All store operating costs – such as staff and property costs – would transfer to the franchisee. We are planning to test the franchise model in two Castorama stores in the next 12 months, with an immediate focus on finding the right franchise partner and optimising commercial and financial terms

2) Improving operating margin efficiency

The second core priority for Castorama is to further improve operating efficiency through strengthening its cost reduction plan, leveraging Kingfisher’s AI and data-driven solutions, and scaling Kingfisher’s higher margin initiatives around e-commerce marketplace and retail media:

  • Strengthening cost reduction plan – as discussed above, Castorama France has made strong progress in lowering its cost base across multiple areas. Significant opportunity remains to become even leaner. Our focus areas include:
    Store productivity – further optimising store operations in line with seasonal changes in demand, and process improvements through increased use of technology such as self-checkout terminals and use of electronic labels
    Procurement & other costs – continuing to reduce energy usage, strengthening security measures in-store to reduce shrinkage, and adopting optimised, system-enabled procurement practices to drive buying efficiency and scale
    Head office costs – more efficient head office operations, in line with the simpler management structure in France
    Supply chain and logistics – further increasing the use of cross-docking sites to facilitate the movement of inventory from manufacturers to stores (with little or no storage required at distribution centres), and the reduction of logistics space through inventory reduction 

  • Leveraging markdown, clearance and promotional effectiveness solutions – Castorama plans to implement Kingfisher’s AI-driven solutions in FY 24/25. Following successful implementation at B&Q in FY 23/24, these solutions have resulted in improved sales, gross margin % and sell-through of stock.
      
  • Scaling higher margin initiatives – in FY 23/24, we signed a Group-wide partnership with CitrusAd to enable advertising for product display and sponsored search. Castorama was the first banner to launch this proposition, generating advertising income through its retail media. In H2 23/24, Castorama began marketing retail media to all its suppliers. We believe retail media has the future potential to reach up to 3% of e-commerce sales as it scales. Following successful launches at B&Q and Brico Dépôt Iberia, Castorama France launched its e-commerce marketplace in March 2024, and will prioritise scaling up the proposition in FY 24/25 to deliver sales of 3P products, incremental 1P sales, increased traffic, new customers to Castorama and, over time, a high incremental profit contribution.  

3) Growing sales densities

The final core priority is to leverage Kingfisher’s capabilities in OEB, e-commerce marketplace, trade and energy efficiency to grow sales densities: 

  • Wider ranges and marketplace – Castorama will leverage Kingfisher’s OEBs, as well as leading national and international brands, to significantly extend its product offer over the next three years with a focus on key categories where they have market share leadership, ranges where there is scope for differentiation, and energy efficiency ranges. This will be complemented by additional 3P SKUs made available via the launch of Castorama’s e-commerce marketplace, significantly expanding Castorama’s current offer of c.70k products 

  • Growing trade penetration – Castorama will leverage Kingfisher’s trade ‘Centre of Excellence’ to grow trade customer penetration, and has developed a plan to increase the pace of trade tests, supported by the launch of a trade loyalty programme in FY 24/25. In H1, Castorama will test dedicated trade counters and sales partners in up to 20 stores 

  • Capture demand for green renovation – Castorama will focus on offering new energy efficiency product ranges and services to make green renovation projects easier and more accessible for customers, including introducing new project design and funding simulation tools. Over time, energy and water efficiency product zones will be installed in stores with dedicated staff showcasing our ranges and services. In-home ‘energy audit’ services will be made available from all stores and online in early FY 24/25 to help customers identify opportunities to save energy in their homes through the purchase of our products. In FY 24/25, we will pilot customer service initiatives to make state subsidies easier for customers to access. We will also extend our network of installers to support renovation projects 

Building on the exciting potential of Brico Dépôt

Brico Dépôt is one of the world’s leading discount home improvement retailers. As described above, significant work has taken place to restore Brico Dépôt’s ‘discounter DNA’ – including introducing new value-oriented ranges, investing in price and trading events – and the business has a much leaner operating model. As the business now enters its next stage of growth, Brico Dépôt has aligned its strategy across four key priorities to further enhance its performance:

  • Driving LFL sales – Brico Dépôt will broaden its product ranges by introducing more OEBs at lower price points, and more products aimed specifically at the trade customer and energy efficiency. To strengthen its price leadership, the business will seek to further invest in price in certain key ranges. The business will also strengthen its promotional activities to boost in-store traffic and sales conversion, including the return of its annual printed catalogue and more loyalty-driven marketing

  • Capturing the trade opportunity – growing trade customer penetration is a priority for Brico Dépôt. The business launched 24 trade tests in FY 23/24 to provide a differentiated proposition to trade customers including dedicated trade desks, customer service experts and a new trade loyalty programme. Early results have been very positive, more than doubling trade sales penetration in the 24 stores. The programme will be rolled out to the entire Brico Dépôt France network in FY 24/25.

  • Testing and optimising the 1,000 sqm compact store format – Brico Dépôt successfully opened its first compact store in Cahors, France, followed by a further store opening in H2. The concept allows customers to access the entire core Brico Dépôt range (c.11k SKUs) in an area of under 1,000 sqm, with a separate space to allow larger and bulk purchases to be collected. Customer reaction has been positive to date, with the focus in FY 24/25 on optimising the proposition. Assuming the format is validated, Brico Dépôt France is well positioned to penetrate more of the geographic ‘white spaces’ that exist in France. Brico Dépôt may also consider the franchising model as an option for the expansion of its network

  • Further improving costs and productivity – Brico Dépôt has started to deploy numerous projects to accelerate store productivity including electronic price labels in our stores (to allow price changes to be implemented more efficiently) and the implementation of self-checkout terminals. These projects will be rolled out across the Brico Dépôt France network in FY 24/25. We are also continuing to optimise store colleague operating models, with a more tailored approach to serving seasonal changes in demand. In addition, with the support of Kingfisher, the business is continuing to drive structural cost savings in the areas of supply chain and logistics and GNFR. 

For more detailed information, click here to download the final results document and visit Section 3: France performance and profitability plan, on page 14. 

Source : Kingfisher

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27 March 2024

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