Kingfisher's profits collapse amid more retail woe

Kingfisher's profits fell 75% last year, after B&Q's disastrous showing in China.

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Last Updated: 06 Nov 2012

The B&Q chain owner has announced that group pre-tax profit in 2008 dropped to £90m. That's an almighty fall from £366m the year before. Performance wasn't helped by B&Q's much-vaunted expansion into China, where sales dropped 24% to £431m. Kingfisher admitted it had leapt in too quickly, leaving it with oversized, loss-making stores. Perhaps it should have read its fortune cookies first.

China has of course been hit by a severe downturn in the housing market. B&Q admitted it was too reliant on the country's booming apartment design and installations market, and that it failed to develop other new services or product ranges.

Kingfisher's response: to swallow its pride and close 22 of its 63 stores across China, while revamping its remaining branches there. The changes will cost the group £107m. The DIY giant has learned the hard way what everyone else already knew: when you're expanding into new markets, you can't expect it all to work out like it says on the instructions.

B&Q says it will return to profitability in China in 2011. That's a bold prediction given the current climate, which surely renders most projections impossible, especially in a market you clearly haven't worked out yet.

Of course, Kingfisher's problems weren't confined to the Far East. UK sales fell by 2.6% to £4.3bn, as people pulled their cash out of home renovations. The group has also said it's closing all nine of its loss-making Trade Depot stores.

Elsewhere on the UK high street, fashion retailer Next saw its profits fall 14% to £428.8m. That's not so bad given the climate, and is a product of its counter-intuitive tactic of refusing to cut prices despite the downturn. It's a sensible ploy which, if successful, will put Next in a good position to capitalise on the upswing. When it comes.

The problem comes in clinging on till then, especially in Next's position beached between budget stores and high-end fashion - which chief exec Simon Wolfson admitted ‘is not the most comfortable place to be during a recession'. Still, it could be worse: it could be trying to sell tiles to the Chinese.

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