Country's first DIY retailer seeks to strengthen position

By Timothy Sifert

London-based company Kingfisher is planning to open as many as two dozen Castorama do-it-yourself retail stores in Poland over the next three and half years, in the hopes of reaping growing revenues out of the company's most lucrative international market.

Castorama, Kingfisher's subsidiary brand, has opened 16 stores since it set foot in the country in 1993. And as the company has recorded some 30 percent returns on its investment here so far - 10 percent higher than returns in parts of western Europe - it is banking on further penetrating the market before the competition for its leading market share gets tough with arriving foreign competitors.

And in Poland there are a lot of people "keen" on DIY projects, making it an ideal market for further growth and investment, added Fiona Piper, a Kingfisher spokesperson.

While Kingfisher's plans look optimistic, analysts say the company's prospects are good primarily because of its advantage as one of the first foreign DIY chains in the country, and the fact that much of the country is in need of repair.

"They really started moving in the mid-1990s opening up stores, so their first mover advantage is large," said one equity analyst who asked not to be named. "And they've established a leading position in Poland. On top of that, in Poland people are pretty good at doing things themselves and many of the older structures are in disrepair."

According to an analyst report by Merrill Lynch in London, the 13 million homes built in Poland in the 1960s and 1970s "have a great need to renovate."

Add to that, the analyst pointed out, the fact that the Castorama brand is not present in all the major cities of a market Kingfisher values at €3 billion (zł. 13.4 billion). "So you can see that there's room for added stores," he said. The capital expenditure for each store opened is roughly €8 million-€9 million (zł. 35.8 million-zł. 40.2 million).

The analyst said that one of the major benefits to the Castorama brand is that Poles are able to identify with it more so than other companies, such as German DIY chain Praktiker. "They are probably too German," he pointed out. Though it might be considered gimmicky, Castorama - in an effort to identify with the country's widespread Catholic traditions - baptizes each of its stores before their first opening, he said.

The only disadvantage in the company's future the analyst could see was increased competition in the market following European Union accession as well as falling margins once the market becomes more saturated. But, he said, as the leading player, Castorama is best situated to battle new competition.

In addition, he said that he expects Castorama, which generally focuses on products for heavy DIY projects, would differentiate its product offerings to provide more items in the decorating sector. That move could not only help it expand its operations, but would also enable the company to exact more gains out of an ever more saturated market.