B&Q an Economic Analysis
1 B&Q Background
B&Q PLC is the UK retail arm of Kingfisher Group PLC and is the UK’s leading DIY and garden centre retailer.
It was founded as a privately held company in Southampton, England in 1969 and went public in 1979 before acquiring Scottish DIY chain Dodge City in 1980. B&Q was itself acquired in 1980 by F. W. Woolworth only to be sold two years later to current owners Kingfisher Group. B&Q PLC contributes 45% of Kingfisher’s total retail sales.
B&Q dominates its sector, in competition with three other large UK DIY superstores; Homebase; Wickes; and Focus; as well as a large number of much smaller retailers and builders merchants. Figure 1: Market Share and Profit per %point of share (Source: Mintel, Fame)
Figure 1 shows B&Q’s market dominance with a 49% share of retail sales and also highlights the profitability of its operations, delivering around 30% more profit from each percentage point of market share than its two closet rivals.
2 Vulnerability and Costs
Vulnerability may be determined by the steepness of the Short Run Average Total Cost (SRATC) curve.
B&Q’s SRATC curve is driven by; Distribution Costs, Property Costs, Energy Costs, Staffing Costs (Quasi-fixed) and Debt Interest.
B&Q owns a property portfolio valued at £800M, most of which is used for trading purposes. There has been no significant addition to the property portfolio over the past 5 years suggesting B&Q are operating at the optimum number of properties. The portfolio is financed by debt. In 2006 B&Q reduced its debt and released equity by selling and leasing back a number of properties.
Rising oil prices have increased energy supply and distribution costs.
Distribution and warehousing is subcontracted to Exel Logistics on a 5 year contract and can be considered a short run fixed cost
B&Q employs close to 37,000 staff on varying contracts with an equivalent of 26,273 full time staff. As the company is focused on customer service it invests heavily in staff training and
B&Q PLC is the UK retail arm of Kingfisher Group PLC and is the UK’s leading DIY and garden centre retailer.
It was founded as a privately held company in Southampton, England in 1969 and went public in 1979 before acquiring Scottish DIY chain Dodge City in 1980. B&Q was itself acquired in 1980 by F. W. Woolworth only to be sold two years later to current owners Kingfisher Group. B&Q PLC contributes 45% of Kingfisher’s total retail sales.
B&Q dominates its sector, in competition with three other large UK DIY superstores; Homebase; Wickes; and Focus; as well as a large number of much smaller retailers and builders merchants. Figure 1: Market Share and Profit per %point of share (Source: Mintel, Fame)
Figure 1 shows B&Q’s market dominance with a 49% share of retail sales and also highlights the profitability of its operations, delivering around 30% more profit from each percentage point of market share than its two closet rivals.
2 Vulnerability and Costs
Vulnerability may be determined by the steepness of the Short Run Average Total Cost (SRATC) curve.
B&Q’s SRATC curve is driven by; Distribution Costs, Property Costs, Energy Costs, Staffing Costs (Quasi-fixed) and Debt Interest.
B&Q owns a property portfolio valued at £800M, most of which is used for trading purposes. There has been no significant addition to the property portfolio over the past 5 years suggesting B&Q are operating at the optimum number of properties. The portfolio is financed by debt. In 2006 B&Q reduced its debt and released equity by selling and leasing back a number of properties.
Rising oil prices have increased energy supply and distribution costs.
Distribution and warehousing is subcontracted to Exel Logistics on a 5 year contract and can be considered a short run fixed cost
B&Q employs close to 37,000 staff on varying contracts with an equivalent of 26,273 full time staff. As the company is focused on customer service it invests heavily in staff training and
References: Boheim, R. and Taylor, M. P. (2004) ‘Actual and Preferred Working Hours’, British Journal of Industrial Relations, 42, 1, pp.149-66 Credit Action (2007) ‘Debt facts and figures – Compiled 2nd April 2007’, London: Credit Action Available at http://www.creditaction.org.uk/assets/PDF/stats/2007/DebtStatisticsApril2007.pdf EuroMonitor International (2007) ‘DIY – United Kingdom’ Country Sector Briefing, London: EuroMonitor EuroMonitor International (2007) ‘DIY and Gardening – United Kingdom’ Country Market Insight, London: EuroMonitor EuroMonitor International (2007) ‘DIY and Gardening’ Key Trends and Developments, London: EuroMonitor EuroMonitor International (2007) ‘DIY to reinvent itself’, London: EuroMonitor Fame Financial Database (2008) ‘Company Reports: B&Q, Homebase, Wickes, Focus’, Amsterdam: Bureau van Dijk Home Retail Group (2007) ‘Home Retail Group plc Annual Report & Financial Statements 2007’ Milton Keynes: Home Retail Group plc Kingfisher PLC (2007) ‘Kingfisher PLC Annual Report and Accounts 2006-2007’, London: Kingfisher Mintel (2008) ‘DIY Retailing UK – January 2008’, London: Mintel