Price cuts, extensive promotional runs and stock clearances are widespread within the increasingly competitive DIY sector in the UKbly such practices have served only to contribute further to falling profit margins. DIY RIP discusses the prospects of DIY giant B&Q, which reported a 9% fall in its sales for the fourth quarter of 2005. B&Q’s performance is not an isolated occurrence but part of a pattern which is repeated across comparable firms in the DIY sector.
The programme addresses the question of whether the UK DIY market is in decline. The question is an interesting one, since the rise and fall of industries is an inevitable consequence of economic change. For example, the current growth of the DVD market at the expense of video tapes is indicative of the changing fortunes of products and services. It’s also a salutary reminder that markets not only mature but are often replaced.
From B&Q’s perspective, it’s important to assess whether the DIY sector is facing a temporary lapse in its fortunes resulting from a lull in DIY activity, or whether the downturn is part of a longer term, structural change with far-reaching effects for the sector. The UK market is a mature one. However, it might come as a surprise to learn that the UK market for DIY tools and materials grew by 5.2% in 2004 to a value of £10.74bn.
Getting someone in is proving an increasingly popular option over doing it yourself.
The problem remains that growth is not translated into profits, given the high levels of price competition that exist in the sector. And cost pressures show no signs of abating with rising raw material prices and concerns about increasing inflation. A closer look at the economic fundamentals of the UK is required, as disposable income and home ownership are critical drivers of demand.
The period from 2000 to 2004 witnessed economic growth above inflation which, in turn, was reflected in strong consumer spending. This was accompanied by a buoyant housing market which encouraged spending on home decoration and allowed homeowners to release equity to borrow money for home improvement.
"An ageing population is less likely to DIY”
This was not the whole story. First time buyers were the losers in this equation and with them a source of current and future spending on home improvement. Similarly, structural changes in the demographics of the UK continue to paint a less positive outlook for the DIY sector. An ageing population is less likely to DIY and more likely to GSI (or Get Someone In).
While economic fundamentals help to explain changes in the DIY sector, it’s likely that other factors exist. Changes in customer tastes and advances in technology also serve to transform the business landscape. The emergence and success of “lifestyle” brands such as IKEA point to a shift in consumer attitudes to DIY.
With affordable and stylish products available at IKEA, first time buyers are able to buy ready-made shelves and bookcases rather than build them from scratch, albeit in flat pack format. The rise of handyman services (who transform your flat packs into something more functional) advertised at IKEA checkouts, further suggests that consumers are less inclined to DIY than to GSI.
The rise of new market segments, such as that occupied by IKEA, is testimony to the creation of new strategic space. Such space is often created by thinking about Key Success Factors (KSF) and whether they have altered. It is commonly understood that, within any industry or sector, the KSF are likely to change along with changes in industry structure, demand and technology.
Key success factors are the minimum entry requirements of a particular market and, hence, are those factors valued by customers such as price, quality and delivery. While price might have been a KSF of the DIY market, consumers also seem attracted to convenience. IKEA, for example, offers shoppers a convenient way to buy stylish furniture at affordable prices. IKEA also has the advantage of a wide selection of products that customers can rely upon being in stock.
Customers might question this definition of convenience, as they have to take the products off the IKEA warehouse shelves themselves! This is an important point. While KSF may not always change, our interpretation of these terms might have. With the emergence of on-line markets, convenience is likely to be associated not only with ordering (one-click in some cases) but also with home delivery.
"The retail sector is no stranger to fads"
The underlying trend of the DIY sector shows growth, albeit at a slower rate than retailers have come to expect. Perhaps it’s only a matter of time before DIY becomes popular once again. The retail sector is no stranger to fads, and the current downturn in the demand for DIY products might be a setback - but only temporarily.
The grocery sector provides a useful parallel. Groceries were once delivered to the customer’s door until the dominance of local grocers was usurped by the arrival of supermarkets. Supermarkets themselves are now placing home deliveries back on the shopping list, through the development of their online services.
Nevertheless, the current expansion of DIY retailers into new overseas markets suggests that optimism about a return to former levels of growth is in short supply.
- Contemporary Strategy Analysis (Chapters 3 and 10) by R M Grant, published by Blackwell Publishing
- ‘Creating new market space’ by W C Kim and R Mauborgne in Harvard Business Review, Jan-Feb 1999
- B&Q website
- IKEA website
- Outsourcing - few companies haven’t considering outsourcing in recent years – what does it mean, and what makes it so compelling?