I always tried to turn every disaster into an opportunity.
I have had very little occasion in the last 25 years (how has it been that long?) to write anything like the following sentence, “Travis Perkins posts pre-tax loss of £123m.” But last week I did, courtesy of the merchanting giant’s write-down of £246m of goodwill at its DIY/trade-lite arm Wickes.
The announcement isn’t for the entire year, just the first half, so there is room, in theory, to make up the deficit. However, with this Summer’s heatwave reportedly due to move seamlessly into an Indian Summer, October, November and December will have to really motor to do so.
What’s behind this poor performance? It’s no good just quoting Bill Clinton “it’s the economy, stupid” because the rest of the groupa reported a fairly good performance – solid revenue growth of 4.4% and like-for-like up 4.2% is not to be sneezed by any stretch of the imagination. What I call “normal builders merchanting” and TP calls General Merchanting (the Travis Perkins and Benchmarx brands) did OK, inching up in revenue terms, Keyline and the rest of the contracts division did really well too. For some time it looked as though the group’s purchase of the former BSS businesses to create the huge Plumbing and Heating division might have been a case of biting off more than was chewable. However, the scary-sounding restructuring of the past couple of years seems to have done the trick, with the division, having looked like a bit of a basket case in previous reports, actually seeing like-for-like sales leap ahead at 20% and the hugely competitive boiler sector starting to come good.
It’s in the Consumer division where it all starts to unravel. Toolstation, the competitor to Kingfisher’s Screwfix, grew 17.6%, and 10.7% on a like-for-like basis on the back of 22 new stores, taking the total network to 317. The investment that has gone into the back office function is massive and is paying off big time. Wickes, alas, is a different story.
Wickes’ tight stock control, relatively narrow product offering and impressive stock turn figures have been seen as strength in the past. So what happened this year?
This year’s slightly bonkers weather performance – sub-zero temperatures at a time when things should really be warming up and the scorchio Summer – have played havoc with forecasting, of the business and weather variety. But I’m not sure that’s where all the blame lies.
The problem may be that it is neither one thing nor the other. Most builders I know wouldn’t go to Wickes for any of the big ticket items – the bathroom or kitchen refits. They go to Benchmarx or Howdens or they send their customers along to whichever merchant they know have nice showrooms, will treat the householder right and ensure the builder ends up with a good deal. They will use Wickes for stuff that they know is on special offer, or that they need on a Sunday or that they want to pay cash for and Wickes is nearer than anywhere else. The big ticket full bathroom and kitchen items tend to be bought by householders who are sourcing their own stuff rather than letting the builders do it.
Where the competition has been benefiting is in the area that Wickes has been weaker in – gardens and landscaping. Sure, there’s hard landscaping on offer, but not a huge range; sure you can pick up plants and furniture there but again, it’s limited. I can go and buy a few blueberry bushes and a six–pack of raspberry canes, but I can’t buy the lobelias and the marigolds and the cherry tomato plants or the gro-bags to plant them in. As a householder, if I go to Wickes, it’s because I know what I want and I know I can get parked, buy it and get out again. I’m not being seduced out of my money by the meander through the garden centre area which takes me past all those extra home improvement bits and pieces that I might as well buy as I’m in B&Q anyway.
John Carter once said to me: “the problem with dealing with the RMI market is that repair has to be done, no question, maintenance really ought to be done, but can be put off or done cheaper, but improvement is the nice-to-have and doesn’t actually need doing at all. It can be put off indefinitely if need be.” And with all the deal-or-no-deal hoo-ha, the uncertainty and the appetite for spending on other stuff (restaurants round my way are heaving, most nights), improvement work is taking a bit of a holiday.
Yes, the market conditions have been challenging, really challenging, and the appetite for major improvement works has diminished, but rumour has it (I share an office with the editor of DIY Week) the same story won’t be coming out of Kingfisher when it reports next week.
Carter told investors when the half-year results came out that it is now “time to step back and take a comprehensive review of our business”. As they did with the plumbing and heating division, this is likely to focus on improving performance and enhancing shareholder value.
Quite what that means for Wickes’ position in the wider group I’m not sure but the “significant cost reduction” that Cater promised means it will probably look quite different come this time next year.