Potential partners already lining up for B&Q China, says Cheshire

B&Q, Europe’s largest DIY group, revealed this morning that it wanted to find a partner for its China business after spending several years turning around the business. Cheshire said the core business has been stabilised and is now broadly at break-even level.

Cheshire said: “We’ve got the business in China to the point where it’s stable enough to look at the next plan of growth. It’s the best way to grow that company. We have concluded we are not going to get there on our own. We would rather have part ownership than take the ‘run for the exit’ approach. It’s probably the most competitive retail market in the world, you need a depth of local retail capability.”

Cheshire added that B&Q China needed “more of a Chinese feel to the business” and that a local partner would help its relationships with suppliers and also aid its management. “We need more of a Chinese mindset, we need to really focus on the local customer,” said Cheshire. “We’d love to have the best of East and West.”

B&Q’s ideal partner

Cheshire said that Kingfisher will screen potential partners in the next 12 months. He added: “We’ve had expressions of interest already.” He said the ideal partner would be a local retailer in a related sector to DIY, an ecommerce firm that wanted physical space or a building supply firm. “We want a professional strategic partner who can bring management capability,” said Cheshire.

He said he would prefer a 50/50 model, similar to its joint venture model in Turkey, but added the retailer will consider other options. “We’ll be pragmatic about it,” he said.

B&Q China sales increased by 8% to £421m in the year to February 1. The retail loss was £6m, against the previous year’s £9m, and largely related to costs of a new format store trial that began in March 2013.

Cheshire expressed concern about the political strife in Russia. Kingfisher operates 20 stores in the country and generated sales of £453m in the year. Cheshire said: “It’s a good long-term opportunity. But in the short term it’s clearly really unhelpful having this level of uncertainty and political risk. But from a customer point of view it’s not really had an effect.”

Kingfisher results

Kingfisher posted adjusted group pre-tax profits up 4.1% to £744m on group sales ahead 3.5% to £11.13bn. Cheshire said after a “truly grizzly” first quarter, when snowfall hit B&Q’s critical Easter trading period, the remaining quarters picked up.

“We finished Q4 in better shape,” said Cheshire. “If you’d asked me at the end of Q1 where we’d end up I’d have taken this result in a heartbeat.”

“We are investing in markets where the omnichannel revolution hasn’t occurred”

Ian Cheshire, Kingfisher

Kingfisher is investing in overhauling its IT systems across the group while also ramping up its omnichannel capabilities. Cheshire said that while online penetration was low in DIY compared with other retail sectors the trend is “going one way”. Click-and-collect trials are underway in France, Turkey and Germany, while mobile sites will launch in Poland, Russia and China. “We are preparing and investing in markets where the omnichannel revolution hasn’t occurred,” said Cheshire.

At B&Q UK & Ireland total sales were up 0.4% to £3.7bn. Like-for-likes edged up 0.1% - the first full-year rise in four years. Cheshire said Kingfisher is aiming to reinvigorate the business. Eight out of 10 of the board members are new since Kevin O’Byrne, chief executive of the B&Q brand in the UK and in China, took direct responsibility in October. “B&Q it’s a fantastic brand but we can do more with,” he said.

Cheshire remained upbeat on the outlook for the sector. He said the more positive trading environment is being driven by the uptick in the housing market. He also predicted that there would be real wage growth this year as inflation falls and wages “creep up”.

He added that the run-up to the critical Easter period is better than last year. “It feels like we’re on a decent trend at the moment,” he said.