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. Last Updated: 07/27/2016

Kingfisher Dives Into Do-It-Yourself Market

For MTAfter St. Petersburg, Kingfisher has ambitious plans to bring its Castorama brand into Moscow and the regions, opening three to five stores annually.
With the opening of its first St. Petersburg store scheduled for late 2005, Kingfisher, Europe's largest home improvement retailer, is entering the Russian market it hopes to dominate in a few years' time.

"Kingfisher wants to be a market leader for DIY [do-it-yourself] goods in this country," said Peter Partma, the company's country manager for Russia.

Kingfisher's first Russian store, to operate under its Castorama brand, will be between 12,000 and 13,000 square meters and will cost about $20 million to build, Partma said. It will be located on Dalnevostochny Prospekt, next to a new Lenta food hypermarket.

With 599 stores in nine countries, Kingfisher -- which also operates such chains as B&Q, Brico Depot and Screwfix Direct -- is the third-largest home improvement retailer in the world, after the United States' Home Depot and Lowe's. Last year it had sales of ?7.7 billion ($14.6 billion).

Partma said Kingfisher would like to open between 10 and 15 stores in Moscow, and added that by the summer, it is likely to gain approval for the construction of its first Castorama in the city.

He would not say where the land sites under negotiation were located exactly, saying only that Kingfisher was considering "several options" in the city proper and in the Moscow region.

In addition to a strong Moscow presence, the company is planning an ambitious regional expansion that should bring it to all of Russia's large cities.

"We are planning to open between three and five stores a year over a substantial period of time -- no less than 10 years," Partma said. In financial terms, the plan suggests a total investment of up to $1 billion.

In order to be successful in Russia, Castorama stores will be "as localized as possible" and will be "adapted to Russian tastes," according to Partma.

The stores will be selling locally made home improvement products, while imported goods will be present as well.

"Russians can make excellent tiles or flooring, but have you ever heard of a good Russian drill?" Partma said.

"An average kitchen in Russia is only 6 square meters, whereas in Sweden it is probably 26 -- this fact will be reflected in our range of goods," he added.

Partma estimated Russia's home improvement market at $6 billion to $7 billion per year. But Viktor Tskhovrebov, retail and consumer goods analyst at Renaissance Capital, estimated that the market will reach $5.3 billion this year, compared with $4.1 billion in 2004.

However, DIY stores so far account for only a small percentage of this booming market, as traditional open-air markets are retaining their popularity.

"We see open-air markets as our main competitors. They are main players controlling the biggest market share, therefore we must have better prices, better service and better locations," Partma said.

Tskhovrebov estimated that "civilized" DIY trade accounted for no more than 10 percent of the market, although he noted that open-air markets' share has been gradually declining.

Germany's OBI became the first Western DIY chain to enter the market when it opened its first two Russian stores in Moscow in November 2003. In 2004, it was followed by France's Leroy Merlin, which also launched two stores.

"Since their combined market share has nowhere to go but up, I don't expect any price wars between Western chains yet," Tskhovrebov said.

Maxim Gasiev, retail director at Colliers International, said that open-air markets were already finding it difficult to compete with large DIY stores.

"Markets have a reputation as 'cheap,' but this is no longer the case. Large DIY stores are often cheaper," he said. "While a market kiosk can buy five taps at a regular price, a store like Castorama can buy 10,000 at a 30 percent discount."

At the same time, no Russian DIY chain has yet emerged to challenge the expansion of Western home improvement stores, he added.

The only large domestic home improvement chain is Starik Khottabych, whose stores are much smaller than those of Western chains and offer a relatively limited assortment of goods.

"We do not see DIY chains as our direct competitors. They offer a wide selection of gardening and home furnishing materials, none of which they center on, while we concentrate in specific types of goods -- such as flooring or wallpaper -- which we become specialists in," said Tatyana Kazakova, head of marketing at Starik Khottabych.