Incorporated: 2003
NAIC: 443112 Radio, Television, and Other Electronics Stores; 443111 Household Appliance Stores; 443120 Computer and Software Stores; 454111 Electronic Shopping
SIC: 5731 Radio, Television & Electronics Stores; 5722 Household Appliance Stores; 5734 Computer & Software Stores
Kesa Electricals plc is Europe's third largest retailer of appliances and electronics goods, operating more than 750 stores in 11 countries. The company's stores specialize in large and small domestic appliances, including refrigerators, washing machines, microwave ovens, coffeemakers, and irons; audio-video products such as televisions, DVD players, and camcorders; and consumer electronics products such as computers, printers, scanners, gaming consoles, cellular telephones, and digital cameras. One of the chains owned by Kesa, BUT of France, also sells furniture. In addition to their product offerings, the chains offer related services. The company's top two banners are Darty, the leading electrical goods retailer in France, which generates around 44 percent of Kesa's revenues and nearly two-thirds of its profits; and Comet, the number two retailer of appliances and electronics items in the United Kingdom, responsible for approximately 29 percent of sales and 17 percent of profits. BUT brings in only about 15 percent of revenues but 19 percent of profits. Kesa (pronounced kay-zer) has expanded the Darty chain into Switzerland, Italy, and Turkey, while also controlling several other banners on the Continent: BCC in the Netherlands, Datart in the Czech Republic and Slovakia, Vanden Borre in Belgium, and Menaje del Hogar and San Luis in Spain and Portugal.
Woolworth and Comet
Kesa Electricals evolved out of Kingfisher plc, but its story ultimately begins with the 1909 founding of F.W. Woolworth & Co. Ltd. as the British subsidiary of U.S. general merchandising retailer F.W. Woolworth & Co. The British Woolworth, which at its peak in the late 1960s ran nearly 1,150 stores in the British Isles, eventually began to diversify after its variety outlets began struggling. Woolworth acquired B&Q, a do-it-yourself chain based in Southampton, in 1980. Two years later, Woolworth was purchased by a syndicate of institutional investors through a takeover vehicle called Paternoster Stores plc, which soon changed its name to Woolworth Holdings plc.
Woolworth Holdings subsequently diversified further, with its next major deal taking it into the electrical goods sector. In 1984 Woolworth acquired Comet Group plc for £128.9 million. George Hollingberry had founded Comet Battery Stores Limited in Hull, England, in 1933 specializing in charging batteries and accumulators for customers' radios. The company later in the decade moved into the radio rental business and changed its name to Comet Radiovision Services Limited. In the early 1950s the firm progressed into the sale and rental of television sets, earning a solid reputation for its after-sales services.
The company's breakthrough to prominence occurred in the wake of the abolition of retail price maintenance in the United Kingdom in the mid-1960s. Comet pioneered out-of-town electrical retailing via the opening of its first discount superstore in Hull in 1968. Several more Comet superstores opened throughout Great Britain over the next few years. Offering deeper discounts than competing main-street price-cutters, the Comet superstores at this time featured about 1,500 product lines, mainly leading U.K. brand-name products, with a roughly equal division in sales between household electrical appliances and electrical home entertainment equipment. Revenues from Comet's superstores skyrocketed from £308,000 in their first year of operation to £8.9 million during just the first six months of fiscal 1971-72. In mid-1972 Comet went public, though the founding family retained a significant stake in the firm.
Through the early 1980s Comet kept pace with changes in consumer electronics, doing increasing business in the sale of VCRs and computers. The number of Comet superstores grew rapidly, reaching 50 by 1976 and then 180 by 1983. Most of these were edge-of-town or out-of-town locations with convenient parking for car-driving customers. For the 1982-83 fiscal year, Comet Group reported pretax profits of £6.4 million on £335 million in revenues. Woolworth's successful bid for Comet had trumped a competing offer from Harris Queensway plc, a carpet and furniture retailer.
During 1986 Woolworth Holdings was subject to a £1.75 billion hostile takeover bid from Dixons Group plc, a competing electronics retailer. To gain regulatory approval for its bid, Dixons had reached a deal to sell Comet to Granada Group PLC, but Woolworth succeeded in fending off the takeover. Its independence secured, Woolworth continued to diversify. Following the 1987 acquisition of Superdrug plc, a discount chain of 297 drugstores, for £256.9 million, Woolworth purchased Ultimate, a chain of 94 electrical retailing outlets, from Harris Queensway for £6.3 million. Acquired in January 1988, Ultimate was integrated into Comet. Later in 1988 Comet entered Northern Ireland when it acquired 15 Connect stores from Granada.
Reflecting the group's shift in focus away from its general merchandising arm, Woolworth Holdings changed its name to Kingfisher plc in March 1989. In October of that year, Kingfisher acquired the Laskys chain of 59 electrical goods shops for £3.6 million. Kingfisher claimed that, by taking on £5.3 million of bank debt from Granada, the shops would be integrated with Comet's 308 shops. In fact, all but about ten of them were closed after they had been operating under the Comet name for only a few months. In December 1989 Kingfisher attempted a much bolder move into electrical goods retailing by turning the tables on Dixons Group via the launch of a hostile £568 million takeover bid for Dixons. The bid was referred by the British government to the Monopolies and Mergers Commission (MMC) one month later because of "possible effects on competition in the U.K. market for the retail of electrical goods." The bid was blocked by the Trade and Industry Secretary at the end of May 1990 following the publication of the MMC's report, which had recommended that the merger not be permitted.
Kingfisher and Darty
Comet began the 1990s as the clear number two electronics/appliance chain in the United Kingdom, trailing only the Dixons-owned Currys. Operating around 320 stores, Comet reported profits of £17.9 million ($34.9 million) for fiscal 1989-90 on revenues of £544 million ($1.06 billion). Most of Comet's stores continued to be sited outside main street shopping areas, and the chain placed increasing emphasis on its consumer electronics side at this time, capturing a growing business in selling satellite television dishes for newly launched U.K. services.
With Comet in the fold, Kingfisher set its sights on the Continent for further growth in electrical goods retailing. In 1993 the company acquired Etablissements Darty et Fils, which held the top spot among electrical retailers in France, for £1.1 billion. Darty was formally established by brothers Bernard and Marcel Darty in 1957 as a business specializing in the retailing of radio and television products. In 1968, the same year that Comet opened its first superstore, the first large-format Darty outlet commenced business in the Parisian suburb of Bondy. The Darty brothers patterned their 800-square-meter store after the warehouse-style specialty stores then emerging in the United States, what would later be called "category killers." This store, which offered a wider array of merchandise at lower prices than previous Darty stores, proved to be a hit with French consumers, and several additional large-format Darty outlets were soon opened in the Paris region.
Long known for its customer service, Darty cemented its reputation in this area in 1973 by instituting its "Contrat de Confiance" (Contract of Confidence), a guarantee of price, choice, and service. To fund further growth, the Darty family brought in outside investors in 1973 and then took the company public three years later with a listing on the Paris stock exchange. The new capital supported the expansion of the Darty chain beyond the Paris region, a growth initiative that began in 1975 with the opening of a store in Lyon.
By 1987 Darty was operating some 90 appliance/consumer electronics stores throughout France. Its sales that year had reached FFr 6.5 billion ($1.1 billion), while net income totaled more than FFr 400 million ($70 million). In April of the following year, the management and employees of Darty gained control of the company through what at the time was the largest employee buyout in French history. Later in 1988 Darty expanded into Belgium by acquiring a 49 percent stake in New Vanden Borre S.A., operator of a 13-store chain of retail appliance and consumer electronics stores. Darty and Vanden Borre subsequently engaged in collective purchasing to gain better deals from vendors.
By the time of its takeover by Kingfisher, Darty was operating 130 stores mostly located in Paris and in the larger provincial cities of France. Like Comet, Darty specialized in domestic appliances and consumer electronics and offered after-sales services. Revenues at Darty had reached approximately FFr 8.3 billion ($1.5 billion).
1994-2002: Building a Pan-European Electrical Retailing Group
In the mid-1990s Comet struggled mightily, prompting some Kingfisher critics to suggest that the company sell the chain. By the 1997-98 fiscal year, however, Comet had achieved a turnaround primarily by restoring its price competitiveness and resolving distribution and systems troubles. In the meantime, Kingfisher bolstered Comet through the 1996 purchase of NORWEB Retail, a division of NORWEB plc. Comet subsequently shut down all 57 of NORWEB's main street stores as well as 38 of its out-of-town outlets, axing about half of the unit's 2,800 employees, but retained 26 of the out-of-town stores, which were rebadged as Comet outlets. This pushed the Comet chain over the 250-unit mark.
Kingfisher followed up on its Darty purchase with a series of additional transactions on the Continent. Late in 1995 Darty acquired full control of Vanden Borre, purchasing the 51 percent of the company's shares it did not already own for £2.5 million. In 1996 Kingfisher spent £84.2 million to acquire a 26 percent interest in BUT S.A., the fourth largest electrical retailer in France with 37 company-owned stores and 195 franchised outlets. Founded in 1972 by the Venturini family, BUT differed from the other chains within the Kingfisher orbit as its stores sold furniture in addition to household appliances; compared to Darty, BUT was more of a down-market chain. In mid-1997 Kingfisher expanded into the Netherlands through the £33.6 million purchase of BCC Holding Amstelveen B.V., operator of 17 electrical goods stores in the Amsterdam and Rotterdam area. BCC's annual revenues of £78 million accounted for 5 percent of the fragmented Dutch electrical retailing market, placing it second behind the market leader, Megapool.
In mid-1998 Kingfisher paid about £50 million ($83.3 million) for a 60 percent stake in two German retailers, ProMarkt Holding GmbH and Wegert-Verwaltungs GmbH & Co. Beteiligungs-KG, whose businesses were then merged. Together, the companies ran 53 ProMarkt electrical stores, 108 smaller photographic equipment and film processing services outlets, and 11 units selling CDs and other entertainment items. Later in 1998 Kingfisher gained majority control of BUT, and by January 1999 held more than 98 percent of the French firm's stock. Kingfisher spent an additional £221.2 million to increase its stake.
In early 1999 Kingfisher's electrical chains established a central sourcing function to begin maximizing buying power across the group of companies and negotiating pan-European agreements with major brands. Another groupwide initiative that year was the launch of a pan-European, private-label brand called Proline. Products in this line were typically positioned at the lower end of the price range to enable customers to afford certain products. Meanwhile, Comet introduced its "destination" store format in 1999. These stores were larger on average than the chain's traditional units, comprising about 2,000 square meters rather than around 750 square meters, and aimed to offer a wider selection of products, particularly in multimedia and electronics, additional in-store services, and an improved shopping environment. The destination stores offered such enhancements as home theater demonstrations, games to try out, and test areas for vacuum cleaners. At the same time, Comet moved to an everyday-low-price strategy, a practice already in place at Darty. This strategy entailed price guarantees and weekly price checks in competing stores. Comet also became a multichannel retailer in 1999 when it began offering online shopping at its company web site.
In April 1999, meantime, Kingfisher reached an agreement on a £6 billion merger with the U.K. supermarket chain ASDA Group plc. However, U.S. retailing behemoth Wal-Mart Stores, Inc., swooped in to trump Kingfisher's bid and acquire ASDA in its first move into the U.K. market. Wal-Mart's coup prevented Kingfisher from pursuing the development of hypermarkets combining a large food section with electrical goods and general merchandise lines.
In the wake of this setback, Kingfisher carried on with its ambitions for creating a pan-European group of electrical retail chains, having already become the continent's number three player in this sector with more than 730 stores in seven countries and revenues of £3.19 billion ($5.15 billion) for fiscal 1999-2000. In January 2000 Kingfisher spent £23.9 million for Flanders-based electrical goods retailer Hugo Van Praag, whose 30 stores were merged into the Vanden Borre chain to form the largest electricals group in Belgium. Kingfisher in October 2000 purchased the 40 percent of ProMarkt Holding it did not already own and then two months later made its first venture into the electricals sector of Eastern Europe by acquiring a 60 percent stake in Datart International A.S. for £16.8 million. Datart operated 15 large-format electrical goods stores, ten in the Czech Republic and five in Slovakia.
In September 2000 Kingfisher announced its intention to demerge its general merchandise arm, including both the Woolworths and Superdrug chains, in order to concentrate on home improvement and electrical goods retailing. By this time, the poor performance of the Woolworths stores was acting as a drag on Kingfisher's stock price. Kingfisher ended up selling Superdrug in July 2001 and then a month later spinning off its remaining general merchandise operations to its shareholders, forming the publicly traded Woolworths Group plc. Over the next several months, Kingfisher expanded its home improvement retailing holdings, while Comet in 2002 began rolling out a second-generation version of its destination stores. By late 2002 Comet had opened 43 destination stores averaging 2,320 square meters, and they were generating more than 25 percent of the revenues at the 260-unit chain. Comet announced plans to open an additional 77 of the megastores over the following five years, many of which were to replace existing smaller outlets.
2003: Independent Electrical Group, Kesa, Formed
In May 2002 Kingfisher announced its intention to further narrow the group's focus to the home improvement retailing sector by demerging its electrical goods business. Before doing so, however, Kingfisher offloaded ProMarkt. Since its acquisition in 1998, the German electricals chain had been a money-losing proposition because of intense competition and a significant downturn in the German electricals market. In February 2003 ProMarkt was sold back to that company's founders, with Kingfisher incurring a loss of £193.6 million ($312 million) in connection with the sale. Then in July 2003 the company spun off the rest of its electrical goods businesses--led by Comet, Darty, and BUT--to shareholders to form the new publicly traded company Kesa Electricals plc. Based in London, Kesa had its primary listing on the London Stock Exchange with a secondary listing on Euronext Paris. The name "Kesa" stemmed from the acronym for Kingfisher's Paris-based electricals division, Kingfisher Electricals S.A. Heading Kesa as chief executive was Jean-Noël Labroue, who had led Kingfisher Electricals since 2000 and was in charge of Darty from 1994 to 2000.
At the time of its demerger, Kesa was operating 790 stores in six countries. Its overall retail profits for the 2002-03 fiscal year totaled £193.3 million ($293.7 million) on revenues of £3.44 billion ($5.22 billion). Darty was by far the most profitable of the company's chains, garnering £100.5 million in profits that year on sales of £1.31 billion. The French chain, which had just begun rolling out a new and improved store format, included more than 190 stores, most of which were between 1,000 and 1,800 square meters in size. By contrast, Comet had generated only £43.3 million in profits in 2002-03 on sales of £1.41 billion. The 250-strong Comet chain continued to be led by its 43 destination stores, which were responsible for 28 percent of revenues.
As an independent company, Kesa got off to a fairly solid start, but in fiscal 2005-06 operating profits fell 17.5 percent as the whole group was hit hard by heavy price deflation across the spectrum of electrical products and Comet began feeling additional pressure from supermarkets encroaching into its territory as well as from online retailers. During the year, Comet began testing the third-generation version of its destination stores, and Kesa also extended its geographic footprint by opening its first Darty stores in Italy and Switzerland.
In March 2006 Kesa's board of directors unanimously rejected a £1.72 billion ($3 billion) takeover offer from the private-equity firms Kohlberg Kravis Roberts & Co. and Permira Advisers LLP. The offer was rejected as one that "undervalues the company and its prospects." Seeming to bear this assessment out were the much stronger results for Kesa in fiscal 2006-07. Buoyed by surging demand for flat-screen televisions, fueled in part by the 2006 World Cup soccer tournament, as well as laptop computers, revenues jumped 9.8 percent for the year, to £4.5 billion ($8.37 billion). More importantly, same-store sales rose 7.8 percent, while pretax profits increased 15.4 percent, to £165.4 billion ($307.6 million). During the year, Comet began boosting the sales space at its larger stores by adding mezzanine levels, and the chain also introduced an information technology support service for home and small business users that was eventually called Comet on Call. Late in 2006 Darty delved further into the services realm by introducing into the French market Darty Box, a "triple play" proposition offering ASDL-based telephone, television, and broadband Internet services. In December 2006 Kesa expanded into another country with the opening of the first Darty store in Istanbul, Turkey.
By mid-2007 Kesa Electricals seemed on the verge of a new era. Labroue had indicated to the company board his desire to step down from his leadership position, prompting a search for a new chief executive. In July, Kesa announced it was examining private-equity firms' offers to buy out the BUT chain. Divesting BUT would clear the company of a noncore business as that chain's focus on furniture differed from the other chains' sole concentration on electrical goods. In September 2007 Kesa completed its first major acquisition as an independent company and entered the Spanish and Portuguese markets via the purchase of Electrodomésticos Menaje del Hogar Sociedad Anomima (EMH) for EUR 100 million in cash and the assumption of EUR 35 million in debt. Based in Madrid, EMH operated 54 stores in Spain and eight in Portugal under the Menaje del Hogar and San Luis banners and generated revenues of EUR 271 million ($347.6 million) for the year ending in March 2007. The purchase of EMH, which ranked as the fourth largest electrical goods retailer in Spain, confirmed Kesa's commitment to its pan-European ambitions.
Principal Subsidiaries
Etablissements Darty et Fils S.A.S. (France; 99.7%); Comet Group plc; BUT S.A. (France; 99.7%); Datart Investments S.A. (Luxembourg; 60%); BCC Holding Amstelveen B.V. (Netherlands); New Vanden Borre S.A. (Belgium; 99.7%); Electrodomésticos Menaje del Hogar Sociedad Anomima (Spain).
Principal Competitors
DSG International plc; PPR SA; Metro AG; Tesco PLC; Argos Limited; Groupe Auchan S.A.; Carrefour SA.
Further Reading
Aldrick, Philip, "Kesa's Italian Circuit Is Worth Plugging Into," Daily Telegraph (London), September 30, 2004.
Boudet, Antoine, and Elsa Condesa, "Kesa Considers Offering BUT to Buy-Out Groups," Financial Times, July 3, 2007, p. 20.
Braithwaite, Tom, "Kesa Expands into Spain," Financial Times, July 26, 2007, p. 19.
Fallon, James, "U.K.'s Comet Aims to Blaze Brightest," HFD-The Weekly Home Furnishings Newspaper, January 2, 1991, p. 218.
Farndon, Lucy, "Kingfisher Switches On to Czech Superstores," Daily Mail (London), October 14, 2000, p. 65.
German, Clifford, "Kingfisher Buys Dutch Retailer," Independent (London), May 21, 1997, p. 25.
Lyster, Samantha, "Kesa Prepares to Leap into Fierce Electricals Market," Retail Week, June 27, 2003, p. 10.
Martinson, Jane, "Comet Acquires Norweb Outlets," Financial Times, November 13, 1996, p. 23.
The Monopolies and Mergers Commission, "Kingfisher Plc and Dixons Group Plc: A Report on the Proposed Merger," London: HMSO, 1990.
Rigby, Elizabeth, and Peter Smith, "Kesa Rejects a £1.72bn Proposal," Financial Times, March 15, 2006, p. 19.
Smith, Alison, "Clearing the Decks at Kingfisher," Financial Times, February 1, 2003, p. 16.
Urquhart, Lisa, "Kingfisher Sells ProMarkt Chain," Financial Times, January 18, 2003, p. 12.
Voyle, Susanna, "Kesa Vision Looks Like Being Tough to Take," Financial Times, July 4, 2003, p. 24.
Weir, Laura, "French Connection," Retail Week, July 21, 2006.
"Why Comet Soared Out of Town," Management Today, March 1984, p. 53.
"Woolworth Steps in with £177m to Clinch Comet," Times (London), April 12, 1984, p. 17.
Wright, Robert, "Kingfisher Takes Control of BUT," Financial Times, June 24, 1998, p. 24.
— David E. Salamie
