View from City Road: Plenty of mileage at Kingfisher
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Your support makes all the difference.FIRST there were the friendly neighbourhood ironmongers. Then came the out-of- town superstore. Now, courtesy of Kingfisher, comes the next generation of DIY outlet, the mega-shed. Called Depot (and appropriately given the American pronunciation Dee Poe), at 70,000 sq ft these are twice the size of typical B&Q stores and stock double the number of lines.
Cautious, sensible Kingfisher has experimented with 15 different Depot formats and at last declares itself satisfied with the formula. In five B&Q stores converted to the chosen format, sales have soared by 46 per cent and their catchment areas have ballooned. Three more Depots will be opened by Christmas and Geoff Mulcahy, chairman, wants to roll out 60 of these behemoths.
Mr Mulcahy recognises that this decade will be deadly slow for retailers. The winners will be those who keep whittling away at costs and exploit efficiency gains, not the do-nothing merchants who hopefully scan the horizon for recovery.
There's plenty of mileage left. Kingfisher is only just starting to roll out scanning equipment in Woolworth and Superdrug, now that rival guinea pigs have ironed out the bugs and the costs are coming down. It reckons it can introduce electronic point of sale technology in Woolworth for less than half the pounds 80m cost it projected when it first examined the option seven years ago.
There are a few quibbles. Shrinkage has worsened dramatically in the Superdrug chain, though this may be as much due to more accurate measurement as higher theft. Woolworth has been strangely slow to stock computer games, one of the few rocketing areas of consumer expenditure. (Dixons and WH Smith have been tapping this market for some time.)
Kingfisher's success in slashing its interest bill was the biggest surprise yesterday. Borrowings are pounds 500m less than they were at their peak in 1988. Gearing at the end of July was just 12 per cent, compared with 22 per cent a year earlier. If it can continue the trend in the second half, full-year pre- tax profits of between pounds 230m and pounds 240m look realistic.
The shares have strengthened over the past week. They managed to stay put at 474p even in yesterday's stock market collapse. That puts Kingfisher on a prospective multiple of 14-15 times 1993 earnings. They look good value as long as the DIY ceasefire holds. If hostilities resume, not even Depot can save shareholders from disappointment.
(Photograph omitted)
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