Kingfisher plans German entry
Such a move is not for the fainthearted. The list of top international retailers who have wrecked their ship on the rocks of Europe's richest, but most price-sensitive country is dauntingly long. These have included French DIY specialist Castorama and US-operator Wickes.
So are fools rushing in, or does Chief Group Executive Ian Cheshire know some safe and cunning course at the helm?
And, as both companies vie for influence in Eastern Europe, what is to become of the partnership (25 per cent since 2001) with local hero Hornbach?
A by no means exhaustive list of retail failures in Germany since 1977 carries such illustrious names as Carrefour (F), Coin/Oviesse (I), FNAC (F), Intermarché (F), Marks & Spencer (GB), Promodès (F), Virgin (GB), Walmart (USA), Wickes (USA) and Delhaize Group (B).
But at least it cannot be said that the London-based Plc doesn't know what it is getting into. Kingfisher, with annual revenues of around €13bn, is an internationally experienced home improvement retailer. With operations in eight foreign countries, including France, the group totals more than 1,000 outlets.
The Brits have had a somewhat bumpy relationship with Germany over the past decade or so. An attempt by former management to save Castorama's failing German stores when they were fully acquired in 2002 was not successful.
A listening post
On the other hand, Kingfisher's stake in Hornbach Holding AG, entered into by former CEO Sir Geoffrey Mulcahy, has provided an excellent listening post within the market.
Soon, however, whether by luck or devilishly clever timing, Kingfisher will be re-entering Germany on its own at a time of profound structural change in the DIY market.
Former Metro Group subsidiary Praktiker is now insolvent, and local rivals Hellweg and Globus are believed to be interested in making a bid for at least some of its "Max Bahr" outlets.
However, any attempt by Kingfisher to go for Max Bahr would almost certainly trigger an enquiry by the German cartel authorities into the "strategic alliance" with Hornbach. This is probably also why larger players Obi and Bauhaus as well as Hornbach itself have not thrown their hat into the ring.
Eyes on Eastern Europe
Kingfisher has already withdrawn from the supervisory board of Hornbach only 24 hours after announcing its plans to launch Screwfix in Germany. This step was taken as a "precautionary" measure "to avoid possible conflicts of interest arising from the expansion strategy of the (two) companies".
These are strange words in relation to partners who are said to have had no qualms about competing in Germany before. And they are particularly surprising as the small Screwfix format would not pose any direct threat to Hornbach's big box outlets.
This has lead to speculation in the trade that the possible conflict of interest between the two could be in Eastern Europe. Kingfisher's purchase of 15 DIY outlets from Bricostore in Rumania a quarter of a year ago has brought the British retail giant into direct competition with Hornbach.
But this could be only the beginning. Many surmise that Kingfisher also has ambitions to open DIY stores in further Eastern European countries. Others believe that there are losses and stagnating revenues at its 39 "B&Q" stores in China and point to these as a possible motive.
Kingfisher could accelerate expansion in Central & Eastern Europe through purchasing the foreign operations of troubled Baumax. The Austrian DIY operator is in heavy water at the moment and is highly indebted to creditor banks.
If Baumax sold its eight foreign businesses, which include 53 stores in the Czech Republic, Slovakia and Rumania, it would bring Kingfisher into further direct competition with Hornbach.
Add to this rumours that the Brits are also interested in the foreign operations of Praktiker, which include Poland, Hungary, Rumania and Bulgaria, and Kingfisher's potential Eastern European DIY empire would grow by another 81 outlets.
Screwfix to do the job
Meanwhile, it is noteworthy that Kingfisher has selected its small, but successful format "Screwfix" as its charger for battle with the Teutons next year. In the UK more than 215 Screwfix branches, offering around 18,000 lines, and Screwfix.com post annual revenues of approx. €640m.
This multi-channel supplier of "trade tools, plumbing, electrical, bathrooms and kitchens" only requires a main warehouse D.C. and a network of small stores for click & collect and online delivery purposes.
The cleverly dovetailed concept would have a clear USP here in Germany, where it is is hard to think of any real equivalent, and planning permission wouldn't be a problem.
But to expand with Screwfix alone looks like a niche strategy and not one where international investors could expect a big hike in Kingfisher Plc's already relatively high p/e ratio.
So the Brits need to have another ace up their sleeve, and it could well be Central & Eastern Europe.
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