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Kingfisher rents out floor space to cushion its costs

B&Q owner Kingfisher is cutting costs by renting swathes of its unwanted floor space to supermarket retailers.

The first Asda has already opened within a B&Q in London’s Bexley and Britain’s biggest home improvement chain, which yesterday posted an upbeat half-year trading update, has struck a deal with other grocers to open 17 more.

The move is the latest initiative being used by retailers who have exhausted ways to operate the space themselves.

Many over-expanded in the boom years and are now struggling to make the space work as consumers rein in spending on all but essential items.

Kingfisher chief executive Ian Cheshire said the current plans – which will see some of his stores halve in size to accommodate the supermarkets – will deliver a 5 per cent reduction in the size of the estate.

It will deliver annual rental and rates savings of £16million and £7million respectively. It also has the potential of saving around £130million to lease-adjusted debt.

Cheshire reckons he could slash store space by 20 per cent and still achieve the same level of sales.

Kingfisher could also ape Tesco by acquiring rival chains and placing them within his B&Q warehouses to make them more compelling shopping destinations. He said everything was on the table, ranging from restaurant chains to related retail operators such camping stores.

Earlier this year Tesco snapped up the Giraffe restaurant business, which it is rolling out into its larger supermarkets.

Kingfisher, which also owns France’s Castorama and Brico Depot, met expectations with a 10.2 per cent rise in half-year pre-tax profit to £401m from £364million.

But much of this was artificially inflated by a one-off gain in the form of a tax rebate. Adjusted pre-tax profit fell to £365million from £371million on sales of £5.7billion as the warm summer failed to offset the cold winter sales of the first quarter. Underlying sales were down 0.8 per cent.

Cheshire said: ‘After a difficult first quarter, in which sales and profits were affected by record bad weather, we were able to capitalise on the better weather in the second quarter particularly in the UK, to grow quarterly profits and so deliver a broadly flat result across the half.’

Kingfisher shares fell 11.5p to 408.5p despite the soaring success of a new range of owl cushions. The firm has been quick to follow trends in fast fashion, which it has adapted to its homewear lines.

Source: This is Money

12 September 2013
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