IN MY OPINION - Institute of Management companion Sir Geoff Mulcahy, group chief executive of Kingfisher, says the new global retailers must use their power to deliver value.
The next few years will see the emergence of global retailers - and Kingfisher intends to be one of them - who are able to use their scale to powerful competitive advantage. But what does it take to be a world-class retailer? The fastest growing have world-class formats that still accommodate national and local cultural differences. They source products on a global scale and their size, as well as the sophistication of their sourcing and distribution networks, gives them huge buying power and the ability to deliver lowest possible prices. Not surprisingly they are also the businesses with the highest investor ratings and market valuations.
Yet the reality is that it is the consumer who is driving the consolidation in retailing, not the expansion-hungry shareholders and retail managements.
Take two recent developments by way of example: the arrival of the euro and the increasing use of the internet and e-commerce. The euro is a major catalyst for cross-border transparency on prices. Shoppers aren't naive.
If a manufacturer's products across Europe are broadly similar, consumers understandably wonder why prices are so different. The answer may be complicated but avoiding the question isn't an option.
As for the internet, consumers can now access a huge choice of suppliers from around the world. The phrase 'shopping around' has acquired a global significance. At the click of a mouse, consumers can now access information that allows them to compare prices from one retailer to another, and from one country to another. Marry that with the web's ability to source the cheapest merchandise and deliver goods and services anywhere around the clock and it becomes difficult to overstate the impact. Competitive pressures mount and retailers have to take consolidation and international expansion seriously.
And, in an increasingly challenging retail environment, companies such as Kingfisher must also learn to live with a low-inflation economy, coupled with price deflation in many categories.
So it's our customers who are the drivers of retail globalisation. As in any other market, a business that loses touch with its customers is on a slippery slope to oblivion. Which is why customer focus has become an obsession with Kingfisher, and has been its guiding principle through a decade of significant growth in Europe and beyond. With some 2,750 stores in 14 countries, Kingfisher now generates around 40% of its sales from outside the UK.
In a business where size and scale matter, we have progressively grown by committing ourselves to three strategic priorities. First, to reinforce a leading position in our existing markets by continuing to develop well-known retail brands such as Woolworths and B&Q. Second, to develop leading market positioning in other European markets - Darty and Castorama in France are highly successful examples. Third, to exploit opportunities for growth in emerging markets by opening stores in China, Taiwan and Singapore. The success of our obsession with customers and our move towards greater international scale is reflected in a market capitalisation that has increased almost tenfold during the 1990s.
Global retailers must be able to offer customers outstanding value and better choice because their buying scale gives them the potential to source on a worldwide basis and secure supply chain efficiencies not open to smaller players. Put simply, the bigger we are, the better equipped we are to provide the benefits that today's shoppers demand. Customers are looking for wider choice, better service and more convenient shopping.
And, naturally, they expect the lowest possible prices.
The immediate availability of price comparisons between the US and the UK and other European countries has fuelled a powerful media campaign against retailers, echoed by the government. And the fact is that consumer demand for lower costs is a legitimate one.
At Kingfisher, we will continue to do whatever is within our power. We are committed to delivering better value to our 20 million customers by leveraging the benefits of our increasing international scale and buying power. Our global sourcing team is forging effective partner relationships with suppliers, aimed at developing new and innovative merchandise while reducing joint costs.
We all have a responsibility - not just retailers, but manufacturers and the Government too - to address the issue in a co-operative and concerted manner. When comparing British retail prices with those in Europe and the US, we have to look at factors that will restrict competition or drive up costs. If there are restrictive planning regulations, higher land and fuel costs, lower investment in roads and more environmental controls, higher sales taxes and new regulations on hours and a minimum wage, there will be a price to pay.
I would like to see a positive dialogue between retailers, suppliers and governments. The aim should be to create a competitive environment which would give customers the best shopping experience. This way, retailing, which accounts for over 2.9 million jobs and a high proportion of consumer spending, will also have a better chance of taking on the best in the world and winning. Encouraging world-class retailers is the best way to achieve world class shopping. And that's an objective nearly everyone could get behind.