The boss of Kingfisher (Castorama, Brico Dépôt) believes that retailers have the means to meet customer expectations on purchasing power. Thierry Garnier analyses the consequences of inflation on customer behaviour.
Thierry Garnier: The issue of purchasing power has taken on a significant psychological dimension among customers with the surge in energy prices, the French presidential election and its media coverage. Inflation is likely to have an impact on purchasing behaviours. In our markets, we see that not all sectors will be affected in the same way. Consumers whose budgets are shrinking are only slightly reducing their food spending. First, they sacrifice travel and trips to restaurants, then spending on clothing and electronics.
We are maintaining an ongoing dialogue with our suppliers to ensure competitive pricing.
However, we note that they are continuing to invest in the development of their homes, which they perceive as a refuge. Our sales trend remains good (+9.3% in France over the past year) while the DIY sector has been living with inflation (wood, copper, etc.) since the end of 2020. This is a good time for the sector: when you want to make savings, you do things yourself. Above all, in the medium term, it is favoured by working from home and energy renovation plans. My priority as CEO of Kingfisher is to ensure that we are continually providing offerings to meet consumer concerns about their purchasing power and that we will accelerate our investment for future growth.
To support consumers, the priority for retailers is to offer them irreproachable price positioning. Last year, we managed to maintain excellent price positioning in all our brands while increasing our margin by 0.3 points. We are maintaining an ongoing dialogue with our suppliers to ensure competitive pricing. Having a wide range of own brand products and a hard discount brand is also a way to be competitive. At Kingfisher, about half of our offer is made of own brand, 15% to 30% cheaper than national brands, and we are lucky to have a variety of brands such as Castorama and the discounter, Brico Dépôt.
I do not think that inflation will significantly erode retailers’ margins in the medium term. The effect of inflation will gradually find its way onto the shelves. In both non-food and food, retailers have other weapons to limit its impact. Own brands are one of them. At the source, the anticipation of orders very early on and negotiations with suppliers are crucial. Being a leader, as we are in England, is an asset for negotiating in good conditions.
In France, the expression “price war” is used as a deterrent. However, competition is healthy, and it is completely normal for retailers to fight on prices. Consumers benefit from it. This does not prevent retailers from having different positions and from also playing on innovation and service. As a leading brand, we must stand alongside the French people in the battle for purchasing power, meet the challenge of innovation and invest for growth.
Our governments must continue to make special efforts to support the poorest households, which are the most affected by inflation.
This strategy is conceivable in theory, as it limits inflation. But it is risky. Some customers will accept changes to the composition of their regular products, but others will find this dishonest and brands and retailers may lose their customers’ trust. As for Kingfisher, this is not our strategy. We prefer to use the levers on which we are competitive, such as the promotion of our own brands or the optimal management of our supplies.
In France, households are already benefiting from an effective government scheme for energy renovation: MaPrimeRénov’ (My Renovation Allowance). Of all the countries in which we operate, this is the most effective measure. We would like it to exist in England. In general, we believe that our governments must continue to make special efforts to support the poorest households, which are the most affected by inflation. At the same time, it is essential for retailers that States ensure fair competition rules with distributors who operate only online, such as Amazon. At the moment, the competition is not fair, as some players do not pay taxes.
Short-term behaviours must be distinguished from structural trends. For example, trends in second-hand sales, or leasing rather than buying, are long-term. They will continue to develop gradually. I do not believe that the current inflation is structural, but it will accelerate these new trends, which are also driven by environmental concerns. To adapt to this new situation, Castorama has signed a partnership with Back Market to offer reconditioned tools in an online store.
Thierry Garnier was interviewed by Marie Bartnik