1. Kingfisher 2009 – Time for Decisions
Kingfisher plc is a major British retailer with an unusually international portfolio. It
achieved this largely by diverting the profits made by B&Q in Britain, using them to buy up
overseas retail chains. In this way it bought the French giants Castorama and Brico. As
shown in Appendix A, the business operates in western Europe, but also in the faster
growing economies in Eastern Europe and the Far East. In 2009, nearly 60% of Kingfisher’s
sales came from outside the UK.
The value of this regional diversification was shown clearly in 2009, as UK sales fell by 2%,
yet Kingfisher plc enjoyed a 10% sales increase. Sales in Poland, for example, rose by 47%.
Despite many positives at Kingfisher, the fact is that the last 5 years have seen a highly
erratic performance. As the bar chart shows, Kingfisher’s annual profit has yo-yo-ed in a
way that would be unnerving for shareholders, suppliers and staff.
£ms Kingfisher plc Annual profit before taxation
700 627
600
500 420
400 366
300
203
200
90
100
0
2005 2006 2007 2008 2009
Part of Kingfisher’s problem was a failure of strategy with B&Q UK. During the property
and credit boom of 2005-2007, customers seemed less interested in DIY*. The company
responded by abandoning its long-term marketing strategy. This had been to focus on value-
for money, promoted by shopfloor B&Q staff featured in TV advertisement. The message
had always been: our expert (often quite elderly) staff will help you find value for money. In
2006 it scrapped this in favour of glossier lifestyle advertising targeting affluent
homebuyers. This was not successful, as UK sales fell. Still worse was to come, though, as
the housing boom burst and recession set in. Fortunately the decision was taken to return
to the earlier format. Pricing, promotion and the product range was restored to the DIY
origins of the chain. *DIY is Do It Yourself, i.e. homeowners carrying out home repairs or improvements
themselves.
To survive the 2008/09 recession, Kingfisher pushed costs down and worked hard to cut
working capital. Its goal was to secure its future by maximising its cash holdings. This was
not a time to be going cap-in-hand to a bank for help. As stated in Appendix C, Kingfisher’s
usage of working capital was successfully cut down by £160 million during its 2008/09
financial year.
As the company reached Autumn 2009, a major strategic decision related to its allocation
of capital expenditure. Should it focus most of its (limited) capital on Britain and France,
Ian Marcouse, Topical Cases, December 2009

2. which together account for nearly 75% of sales. Or should most of the available investment
be put into Poland, Russia and China, which represent huge opportunities for the future?
Decisions needed to be made.
Appendix A. Kingfisher Main Operating Areas Worldwide. Source: Kingfisher Accounts 31/1/09
Country House- Market Market % 2009 GDP Store Sales Full-time
holds size ‘09 position market growth number area staff
(m) (£bn) share (est) s (000 sq
m)
UK 25 26 1 16.5 -3.2% 322 2,401 23,425
France 26 31 1 12.5 -1.8% 197 1,528 17,991
Spain 14 5 3 2 -2.9% 15 88 784
Poland 14 7 1 15 +1.5% 46 361 8,335
China 374 29 1 2 +6.0% 63 599 10,032
Russia 53 16 3 1 +1.0% 7 63 1,584
Turkey 16 6 1 4 -1.5% 21 109 2,025
Appendix B. Extracts from an Interview with the Chief Executive, Kingfisher
International
You have a big problem in China, are you the man to crack it?
What is clear is that China is going to be a very attractive growth market over the medium and longer term and it
makes a lot of sense to be there. We have built a good leading position but with hindsight our expansion was too
fast since 2004 and operational issues crept in. The market was booming, so the mistakes weren’t obvious in the
numbers but now that the market has turned down so sharply the issues have surfaced.
What changes are planned for China and how much will it all cost?
A comprehensive China repositioning is now under way, store numbers will be rationalized from 63 to 41 and all
remaining stores will be revamped, of which 17 will be downsized. Around £30 million of cash will be invested in
revamping the remaining 41 stores.
Which market do you get the most excited about?
That’s a tough one as I can see opportunity in many places. I guess today I am most excited about Russia as I can
see that becoming the next Poland. We are slowly, but successfully building a good business in Russia. It’s similar
to Poland in that there is huge demand for existing home renovation after years of under-investment and the
industry is served mostly by (small) outlets with variable quality and pricing. I think a western-style retail offer
will work well in Russia.
Appendix C. Extracts from an Interview with the Group Finance Director, Kingfisher plc
The present economic climate must be one of the worst you’ve seen, what does this mean for
Kingfisher?
The economic backdrop is very tough and I suspect it will remain so for another 18 to 24 months. We need to act
decisively, manage our cash and look after our customers. As we manage our cash and costs and offer our
customers reasons to shop with us we can grow even stronger during this downturn. Weaker players in our
markets will be under great pressure, leaving us opportunities to grow market share.
How will Kingfisher deliver its promise of lower working capital?
This is very important as we work to deliver increased returns. The organisation is responding urgently to
challenge around working capital levels. The key focus will be on stock management where the challenge is to
reduce stock levels while maintaining or improving stock availability for customers. It’s a two or three year
journey but all the businesses have clear plans for delivery and we got off to a great start last year by
reducing working capital by £180 million – ahead of our target.
Appendix D. GDP Growth Forecasts for Key Economies, 2009-2020, IMF 2009
China: 5.9% Russia: 4.1% Poland: 4.0%
UK: 2.5% Spain: 2.4% France: 2.1%
Questions (60 marks; 80 minutes)
Ian Marcouse, Topical Cases, December 2009

3. 1a) Examine how a business such as Kingfisher might set about reducing its usage of working
capital. (6)
1b) Explain the difficulties the business might face as a result of these attempts. (6)
2. Discuss the possible causes and effects of a faulty marketing strategy for a business
such as B&Q. (14)
3. Based on the text and the Appendices, write a report on whether Kingfisher should focus
its 2009/2010 investment capital on Britain and France, or on the rest of its worldwide
operations. The format should be:
a) Reasons to focus on Britain and France (10)
b) Reasons to focus on the rest of its worldwide operations (10)
c) Recommendations on the correct strategy, with supporting arguments. (14)
Mark Scheme Kingfisher plc
1a) Examine how a business such as Kingfisher might set about reducing its usage of
working capital. (6)
Ian Marcouse, Topical Cases, December 2009

4. Content Application Analysis
2 marks 2 marks 2 marks
Level 2 marks 2 marks 2 marks
2 Reasonable understanding Reasonable attempt to apply Reasonable analysis of
shown of working capital answer to a business such as w/c reduction
Kingfisher
Level 1 mark 1 mark 1 mark
1 Limited understanding Limited attempt to apply answer Limited analysis of w/c
shown of working capital to a business such as Kingfisher reduction
• Definition: Working capital is used to fund the day-to-day activities of a business.
Reducing it usually requires a focus on stock (inventory) reduction, plus a tightening of
credit terms: taking longer from suppliers; giving less to customers
Analysis: stock reduction can be by selling off existing stock aggressively, e.g. ‘all items 25%
off this week’ or by cutting supplier orders; either (or both) will achieve stock reductions and
therefore boost the firm’s cash holdings.
Credit improvements (as mentioned earlier) will keep more of the firm’s money in its own bank
account.
1b) Explain the difficulties the business might face as a result of these attempts.
(6)
Content Application Analysis
2 marks 2 marks 2 marks
Level 2 marks 2 marks 2 marks
2 Reasonable understanding Reasonable attempt to apply Reasonable analysis of
shown of effects of answer to a business such as the effects of w/c
cutting working capital Kingfisher reduction
Level 1 mark 1 mark 1 mark
1 Limited understanding Limited attempt to apply answer Limited analysis of the
shown of working capital to a business such as Kingfisher effects of w/c reduction
Answers might include:
• Lower stock levels may imply higher unit costs, if there is a significant reduction in bulk-
buying; lower stock levels may also lead to customer dissatisfaction due to empty shelves,
especially for a business such as B&Q, where sunshine in March leads to sudden surges in
demand for garden chairs, plants etc.
• Tougher credit terms can be very disruptive of relationships, but (in times like these) may be
even worse – pushing a supplier into liquidation; this is not only an ethical question but also a
practical one (who supplies you now?)
2. Discuss the possible causes and effects of a faulty marketing strategy for a
business such as B&Q. (14)
Ian Marcouse, Topical Cases, December 2009

5. Content Application Analysis Evaluation
3 marks 3 marks 4 marks 4 marks
Level 3 marks 3 marks 4- 3 marks 4-3 marks
3 2 relevant points are Good attempt to Good analysis of Candidate shows
identified and apply answer to B&Q argument, good judgement;
explained showing developing points weighs up the
good understanding fully arguments; well
reasoned
conclusion
Level 2 marks 2 marks 2 marks 2 marks
2 2 relevant points are Reasonable attempt Reasonable Some judgement
identified or 1 to apply answer to analysis of shown in reaching a
relevant point B&Q argument conclusion
identified and
explained
Level 1 mark 1 marks 1 mark 1 mark
1 1 relevant point Limited attempt to Limited analysis Limited judgement
identified showing apply answer to of argument shown.
limited understanding B&Q
Causes:
• Faulty analysis on the part of the staff concerned (mistaking a temporary event for a new
trend)
• Excessive pressure, perhaps from shareholders (demanding instant success)
• Failure of customer understanding, perhaps due to poor market research
• Misuse of a marketing model, such as Ansoff’s Matrix – in particular, underestimating the
risks of moving away from market penetration
Effects:
• Every marketing change implies a huge new investment, e.g. in store decorations and stock
ranges (posher supplies in 2006/2007 – probably sold off cheaply later on)
• Consumers respond best to consistent messages, so lurches in marketing strategy can be very
unhelpful.
• A faulty strategy gives competitors a chance to gain market share. Luckily for B&Q, it had
little direct competition in the UK
Ian Marcouse, Topical Cases, December 2009

6. 3. Based on the text and the Appendices, write a report on whether Kingfisher should
focus its 2009/2010 investment capital on Britain and France, or on the rest of its
worldwide operations. The format should be:
a) Reasons to focus on Britain and France (10)
b) Reasons to focus on the rest of its worldwide operations (10)
c) Recommendations on the correct strategy, with supporting arguments. (14)
Content Application Analysis Evaluation
8 marks 8 marks 8 marks 10 marks
Level 8-6 marks 8-6 marks 8-6 marks 10-8 marks
3 Arguments are Arguments are Good analysis- Candidate shows good
offered on both sides consistently rooted arguments are judgement; weighs up
with explanation in the case material well developed the arguments; well
on both sides reasoned conclusion
Level 5-3 marks 5-3 marks 5-3 marks 7-4 marks
2 Two or more Good attempt to Reasonable Some judgement shown
arguments are use context to analysis of the in reaching a
offered on both sides develop arguments argument(s) conclusion
with limited
explanation
Level 2-1 marks 2-1 marks 2-1 marks 3-1 marks
1 One or two relevant Limited attempt to Limited analysis Limited judgement
argument(s) are apply knowledge to of the shown.
identified the scenario argument(s)
Arguments for Britain and France:
• With 75% of sales, these are the heartland areas. In tough times, it may be better to focus on
maximizing profits (or minimizing losses) from these than investing in future growth in the
rest of the world
• The problems Kingfisher has had in China (Appendix B) show that GDP growth rates are not
the only issue affecting success; effective management may be much harder in a far-off
country – especially a developing country with little background experience of UK
management styles.
• The bar chart shows how tough 2009 proved to be. This is surely a time to focus on the core
of the business
• Appendix A provides other important data. It is easy to see why Kingfisher should be able to
do well in Britain, France (and Poland), as the business has a significant market share. Even
though the company may be ‘Number 1’ in China, with just 2% market share it has little
market power or influence.
Arguments against Britain and France:
• Appendix D shows an estimate of growth rates in coming years. Over a long period such as
2009-2020, compound growth of 5.9% will take China far beyond Britain. And with its
astonishing 374 million households (15 times more than Britain), it is easy to see the huge
potential in China.
• In mature markets such as France and Britain it is hard to increase market share significantly;
all the main niches have been filled and the competitors are probably quite competent;
therefore it is easier to see potential in a country such as Russia. Appendix B gives a strong
case for Russia becoming a significant success for Kingfisher in future
Conclusion (based on the above):
Ian Marcouse, Topical Cases, December 2009

7. • As soon as possible Kingfisher should be picking its key target countries (perhaps China and
Russia) and investing as much as is needed for success. Until the economy has settled down,
however, it is probably wise to make Britain and France the top priorities. If investment leads
to greater efficiency and therefore higher profitability, that would be very helpful (and create
some capital for heavier spending on the other branches of the business next year)
Ian Marcouse, Topical Cases, December 2009