Kingfisher to double Turkey business in five years

Kingfisher, Europe's biggest home improvements retailer, plans to double the size of its business in Turkey over five years and then expand it into neighbouring countries as it looks to step up sales growth. Chief Executive Ian Cheshire told Reuters on Wednesday that Koctas, its joint venture with Turkey's biggest company Koc Holding, would open 6-8 stores a year to add to its existing 35 outlets.
Koctas, formed in 2000, is already Turkey's biggest home improvements chain. But with a market share of around 6 percent in a country whose population and economy are both climbing, Cheshire said there was plenty of room to expand. "This is one of the big growth opportunities for us. There is no reason why we can't have 100 stores in Turkey," he said.
With around 74 million inhabitants, Turkey has a larger population than any European Union country except Germany and its government sees growth of 7.5 percent this year, attracting international retailers from French grocer Carrefour to British luxury label Burberry.
Cheshire was speaking at the opening of a new format Koctas store in Ankara. Inspired by the Grand Bazaar covered market in larger Turkish city Istanbul, the 8,600-square-metre store features a central boulevard with park benches and street lamps where bagel sellers offer customers snacks.
There are also three giant houses showcasing bedrooms and living rooms, kitchens and bathrooms which, if popular, could be replicated in other larger Koctas stores. Koc Holding is the only Turkish company in the Fortune Global 500 list and revenues from its businesses, which span energy, tourism and construction and financial services, equated to 7 percent of Turkey's gross domestic product in 2010.
Cheshire has focused mainly on boosting Kingfisher's profitability since he took the helm in 2008, mainly by buying more goods centrally and directly from cheap manufacturing centres like Asia. First-half profits jumped 24 percent to 439 million pounds, topping the figure for the whole of 2008-9.
While he believes that is still a work in progress, he recognises the group needs to step up sales growth if it is to hit a target set in March to more than double underlying earnings by 2013-14. Cheshire believes there are still opportunities to grow in Britain and France, which each account for about 40 percent of group sales, whether through its recent purchase of stores from failed rival Focus DIY in Britain or its drive to make do-it-yourself easier for customers with in-store tutorials.
"The market can be flat, even slightly down. We as leaders, either through consolidation ... or through our own efforts, can generate a bit of sales growth," he said. Kingfisher, which runs B&Q in Britain and Castorama and Brico Depot in France, also plans to expand in faster-growing emerging economies, such as Poland and Russia, where it unveiled a 115 million pounds investment last month.
Cheshire said Koctas currently made an annual profit of about 30 million pounds ($47 million) on over 300 million pounds of sales and was self-financing. Koc Holding CEO Turgay Durak said Koctas's sales were set to rise over 20 percent this year after 25 percent growth in 2010.
Longer-term, Cheshire said there were plans to expand Koctas into neighbouring or nearby markets like Azerbaijan, Armenia, Turkmenistan, Kazakhstan, Iraq and Egypt. "Could it be the base for an extended reach into other countries? Absolutely," he said. "We have had conversations with the Koc group," he added, while stressing the focus at the moment was expanding in Turkey.
In about ten years, Cheshire said he expected a third of group sales and profits to be made in each of Britain, France and its other international territories, which include markets like Poland, Turkey and Russia as well as Spain. Cheshire said Kingfisher, which has spent three years dragging its loss-making Chinese business back to break-even, was unlikely to make a definitive decision on the future of that operation at an update in March. "The existing 40-store model doesn't demonstrate enough return. I think I can describe on paper what should, but until I see it we won't put lots of money into China," he said. Kingfisher was most likely to announce plans to test a new store format focused on demand in China for complete fit-outs of apartments, which would include a design centre, he said.