Screwfix and Kesko/Onninen growing as DIY peers decline
DIY and hardware retailers like Home Depot were among the biggest winners during the exceptional pandemic years. However, unlike grocery retailers, the heightened inflation has started to influence the performance of DIY retailers. Especially consumer businesses of the retailers have declined quite rapidly. Of the big DIY chains, all of them saw revenues decline.
Even the growth machine of Home Depot stalled during the first quarter with a growth of -4,2%. During the last ten years, Home Depot has seen only two-quarters of declining revenues.
Despite the declines, the big DIY chains are trading healthily above the pre-pandemic levels.
Of the selected DIY retailers, the Swedish pure-play online company, BHG, has been the exceptional growth story. After the excellent growth run of the past five years, BHG has seen two-quarters of declining growth. The organic growth (not including acquisitions) has been negative for four consecutive quarters.,
Exceptions: Screwfix and Onninen
As always, there are some exceptions to the decline of the industry. Within the European DIY giant, Kingfisher, Screwfix was able to continue growth with a +6,6% growth quarter. Of the seven DIY banners under Kingfisher, Screwfix was only one of three banners to report growth.
The other company able to grow during the first quarter of 2023 has been the B2B DIY arm of Kesko, Onninen. The consumer businesses of Kesko DIY in Finland, Sweden and Norway declined for a third consecutive quarter. Despite the malaise in the consumer business, the B2B side has remained with a robust +8,2% growth.
Steady margins despite reducing inventories
Like many other non-food categories, DIY retailers in different countries saw inventories grow rapidly during the pandemic. As the demand grew unprecedentedly, the retailers rushed to get enough products to sell. This inventory growth turned faster than the revenue during early 2021.
Especially notable in this development was the fast-growing BHG. The company grew 30+% per quarter through both 2020 and 2021. During 2021, the inventories also started to grow rapidly. From Q3/2021 to Q3/2022, inventories increased faster than 100% per quarter. This led to the explosion of inventories as the sales growth started to decline during 2022.
During Q1/2023, BHG reduced inventories heavily, with a -18,9% decline in inventory levels. This came at the cost of margins as well as operating profitability. The EBIT of BHG dropped to -100 M€.
The bigger DIY retailers saw an increase in inventory levels. All of the companies have started to decrease their inventories. This has influenced the Gross margins, but only slightly.
How long the decline period becomes for the DIY sector remains to be seen. The sector will likely bounce back to growth relatively soon. Especially the well-managed giants of the industry, such as Home Depot, have a good track record of keeping periods of decline short.
