Kingfisher to shift some sourcing from China to Europe

PARIS Tue Oct 8, 2013 10:47am EDT

PARIS (Reuters) - Kingfisher (KGF.L), Europe's biggest home improvements retailer, said it would source more products from eastern Europe and Turkey to counter higher costs in China, and build a central warehouse in Europe to improve its supply chain.

The company, which has suffered from weak demand due to sagging housing markets in many key countries, had tried to improve profitability by buying more goods centrally, and directly, from places like China.

But rising wages in China and other emerging economies, along with increased productivity and flexibility in mature markets, have been eroding the allure of offshore production.

"We are increasingly looking at product from eastern Europe and Turkey due to proximity and the shorter supply chain," Ian Cheshire told Reuters in an interview on the sidelines of the World Retail Congress in Paris.

"The supply chain becoming more flexible means you can operate on lower stocks and resupply more quickly."

Kingfisher, which trades from around 1,070 stores in nine countries in Europe and Asia with a focus on Britain and France, is the world's third-biggest home improvements retailer behind U.S. groups Lowe's (LOW.N) and Home Depot (HD.N).

Wal-Mart Stores Inc (WMT.N), the world's biggest retailer whose focus on low-cost sourcing helped to fuel the offshoring of U.S. manufacturing, pledged in January to buy an additional $50 billion in U.S.-made goods over the next 10 years.

Kingfisher has said it wants to increase common sourcing for all its brands from 2 percent to 50 percent and boost direct sourcing - or buying straight from manufacturers instead of via third-party distributors - to 35 percent from 15 percent.

The retailer, which runs the B&Q and Screwfix chains in Britain as well as Castorama and Brico Depot in France, is also looking for other ways to improve its supply chain, including establishing a central warehouse.

Cheshire said the company's focus on Britain and France, and its expansion to markets like Poland and Germany, made Belgium the most likely spot and hopes to be up and running by 2015.

A central warehouse would also help the strategy of selling more high-margin own-label products, a common response of many retailers to the pressure e-commerce is putting on profits.

Cheshire said he expected own-label sales would grow to half of sales from a current 35-40 percent in Britain and France, while the potential was even greater in markets like Russia and Poland where own-brand sales are only around 5 percent now.

(Reporting by Emma Thomasson; Editing by Sophie Walker)