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Frontpage Divisions Building and home improvement trade

Building and home improvement trade

Rautakesko is an international service provider which retails building, renovation and home improvement supplies in Finland, Sweden, Norway, Estonia, Latvia, Lithuania, Russia and Belarus. Rautakesko manages and develops the K-rauta, Rautia, K-maatalous, Byggmakker, Senukai and OMA retail chains and B2B sales in its operating area. Rautakesko's main functions include the centralised development of chain selections, centralised purchasing and logistics, and the development of chain concepts and the store network. There are 331 building and home improvement stores in eight countries and 88 agricultural stores in Finland. All stores in Finland are owned by retailer entrepreneurs. There are also 96 retailer-owned stores in Norway.

The best total solutions for building, renovation and home improvement

Building and home improvement trade market

Working in cooperation with its customers, Rautakesko enhances living. Rautakesko aims to be a leading international retail company in the building and home improvement trade, and the market leader in its operating area. Rautakesko's building and home improvement store chains K-rauta, Rautia, Byggmakker, Senukai and OMA serve both consumer and professional customers. Consumer-customers mainly comprise home, leisure home and yard builders, renovators and interior decorators. Important professional customers include construction companies, the manufacturing industry and public institutions.

In terms of its chains' retail sales, Rautakesko is one of the six largest companies in the European building and home improvement market. The sector's largest operators in Rautakesko's market area are DT Group, Bauhaus, OBI, Leroy Merlin and Castorama. Rautakesko is a partner in tooMax-x GmbH, which is, in terms of the purchasing power, the third largest European sourcing channel for home building and interior decoration items.

The total retail market of this sector in Rautakesko's operating area amounts to some €25 billion (VAT 0%). During 2010, the market took an upward turn in Finland, Sweden and Norway, while the downward trend stopped in the Baltic countries and Russia.

Retail sales of Rautakesko's chains totalled €3,314 million (VAT 0%) in 2010, an increase of 7.2% from the previous year. Rautakesko's market share of the building and hardware trade in the whole operating area is approximately 15% (own estimate).

In Finland, the retail market in the building and home improvement sector totals some €3.4 billion (VAT 0%, Finnish Hardware Association, DIY) and increased by 11% in 2010 (Finnish Hardware Association, DIY). The K-Group's market share in this sector is some 37% (Finnish Hardware Association, DIY, own estimate).

In Finland, Rautakesko operates the K-rauta and Rautia retail chains and Rautakesko B2B Sales which serves construction companies, the manufacturing industry and other professional customers. In addition, Rautakesko has 32 customer contract stores.

The K-rauta chain consists of 41 stores, with some 70% of sales going to consumers. The Rautia chain consists of 106 stores, 50 of which also operate as K-maatalous stores, engaged in the agricultural trade. The emphasis in the sales structure of Rautia is more on basic building products. All Finnish chain stores are run by retailer entrepreneurs.

The combined retail sales of the K-rauta and Rautia chains, Rautakesko B2B Sales and K-customer contract stores in Finland were €1,259 million (VAT 0%), an increase of 7.8% from the previous year. The principal competitors in Finland are Starkki (DT Group), Kodin Terra, S-rauta, Agrimarket and Bauhaus.

In Sweden, the building and home improvement market totals some €3.1 billion (VAT 0%, own estimate). In 2010, the market grew by about 2% (own estimate).

At the end of 2010, Rautakesko had 20 K-rauta stores of its own in Sweden. Retail sales of K-rauta stores in Sweden totalled €209 million (VAT 0%), a growth of 11.2% from the previous year. Rautakesko's market share is about 7% (own estimate).

Private customers account for around 85% of K-rauta clientele. The principal competitors are Bauhaus, Byggmax, Beijer Bygg (DT Group) and local speciality stores.

In Norway, the building and home improvement market totals some €4.9 billion (VAT 0%, own estimate), up 4.5% in 2010 (own estimate).

Byggmakker Norge AS, which is owned by Rautakesko, manages the Byggmakker chain of building and home improvement stores. The chain consists of 112 stores, 16 of which are owned by Byggmakker. Other stores in the chain are owned by retailer entrepreneurs who have chain contracts with Byggmakker. Retail sales of the chain's stores totalled €864 million (VAT 0%) in 2010, an increase of 13.0%. Rautakesko's market share in Norway is about 18% (own estimate). More than half of all sales are to professional customers. Rautakesko's principal competitors are Monter/Optimera (Saint Gobain), Maxbo, Coop and Bauhaus.

In Estonia, the building and home improvement market totals some €0.3 billion (VAT 0%, own estimate) and in 2010 the market decreased by 12% (own estimate). Rautakesko has nine building and home improvement stores in Estonia. Their retail sales totalled €52 million (VAT 0%) in 2010, a decrease of 17.5% from the previous year. Professional customers account for some 60% of all sales. Rautakesko's market share in Estonia is about 18% (own estimate). Rautakesko's main competitors are Ehitus ABC (Saint Gobain), Bauhof and Espak, and Bauhaus in Tallinn.

In Latvia, the building and home improvement market totals approximately €0.3 billion (VAT 0%, own estimate), a decrease of 5% in 2010 (own estimate). Rautakesko has nine K-rauta stores of its own in Latvia. Retail sales of K-rauta stores totalled €47 million (VAT 0%) in 2010, a decrease of 3.9%. It is estimated that Rautakesko's market share in Latvia is 16% (own estimate). Rautakesko's principal competitors are Depo DIY and Kursi.

In Lithuania, the building and home improvement market totals some €0.3 billion (VAT 0%, own estimate) and it decreased by 15% in 2010 (own estimate). In Lithuania, Rautakesko has the majority shareholding in UAB Senuku Prekybos centras, which is the market leader in the Lithuanian building and home improvement sector with a share of about 25%. The Senukai chain, which sells to both consumers and business customers, comprises 17 stores of its own, a logistics centre and 58 partner stores. Senukai's retail sales totalled €228 million (VAT 0%) in 2010, a decrease of 12.4% from the previous year. Its competitors include local building supplies outlets and speciality stores.

In Russia, the total market for building, home improvement, interior decoration and home goods trade is some €12 billion (VAT 0%, own estimate). In 2010, the market was at the same level as in the previous year (own estimate). There are 12 K-rauta stores in Russia and their retail sales totalled €204 million (VAT 0%) in 2010, an increase of 20.5% from the previous year. Rautakesko's market share in its operating area in northwestern and central Russia is about 5% (own estimate). Rautakesko's principal competitors are Leroy Merlin, OBI, Castorama, Maxidom and Metrika.

In Belarus, the building and home improvement market totals some €1.0 billion (VAT 0%, own estimate). In Belarus, Senukai controls OOO OMA, which has five stores and distribution outlets for professional customers. Their retail sales amounted to €72 million (VAT 0%) in 2010, representing an increase of 37.9%. OMA's market share is some 7% of the total market (own estimate).

Agricultural trade market

The K-maatalous chain in Finland consists of 88 K-maatalous agricultural stores, 51 which are combined Rautia-K-maatalous or K-rauta-K-maatalous stores. Major customer groups are agricultural entrepreneurs and contractors.

As part of the reorganisation of Kesko's division, the agricultural trade was transferred to Rautakesko in 2009. In 2010, the net sales of the agricultural supplies trade increased by 3.2%.

Strong chain concpets

Rautakesko's operations are based on customer-oriented chain concepts, efficient sourcing, and the best practices, which are duplicated internationally. Rautakesko's international business model combines the category management, purchasing, logistics, information system control and network improvements of the company's chains which operate in different countries. The total synergy benefits achieved enable the company to offer products and services to customers at competitive prices.

K-rauta is Rautakesko's international concept. K-rauta operates in Finland, Sweden, Estonia, Latvia and Russia. The K-rauta concept focuses on wide selections, total solutions that make customers' lives easier and a reliable price-quality ratio. The concept combines the total services and solutions, selections and business models for consumers, builders and professional customers.

The Rautia chain has the widest building and home improvement store network in Finland. Its selections are targeted at builders, renovators and building professionals in particular. Key competitive advantages include comprehensive customer service, knowledge of the local market and the cooperation network. Many Rautia stores also complement their range with agricultural supplies.

The K-maatalous chain's strengths include the K-maatalous retailers, who know the local customers and circumstances, and the wide product range combined with the comprehensive services and network. Active contacts and sales and the utilisation of data and information technology provide the basis for close cooperation between agricultural entrepreneurs and K-maatalous.

Byggmakker is the largest building and home improvement store chain in Norway. Special strengths include sales of building supplies and knowledge of professional customers. The Norwegian concept has undergone a reform with the introduction of Byggmakker stores providing full service.

The Senukai chain is the market leader in Lithuania. The Mega Store concept offers customers just about every product related to building and living at the stores of over 20,000 m2. In June 2010, Senukai's subsidiary OMA opened its full-service store in Minsk, the first of its kind in Belarus.

Rautakesko B2B Sales operates in Finland. Its customers include nationwide construction companies, the manufacturing industry and other professional customers. Rautakesko B2B Sales' strengths include close cooperation with the network of Finnish K-rauta and
Rautia stores through which a significant part of the deliveries are made.

Year 2010

In 2010, the building and home improvement market took an upward turn in Finland, Sweden and Norway. In the Baltic countries and Russia, the decline in the market stopped.

Rautakesko's net sales totalled €2,519 million, representing an increase of 9.0%. Net sales in Finland amounted to €1,163 million, up 10.2%. The building and home improvement trade amounted for €842 million, while the agricultural supplies trade was €321 million. The net sales of subsidiaries in other countries totalled €1,357 million, up 8.0%. The subsidiaries outside Finland accounted for 53.9% of Rautakesko's net sales.

In the building and home improvement trade, operating profit excluding non-recurring items was €24.0 million, up €12.1 million. Rautakesko's capital expenditure totalled €78.2 million, with capital expenditure outside Finland accounting for 54.4%.

In 2010, one K-rauta store was opened in Jyväskylä, Finland; one in Stockholm, Sweden; and two stores in nearby areas of Moscow, Russia. In Belarus, OMA opened its first full-service building and home improvement store in Minsk. The network was also strengthened by opening a Rautia-K-maatalous store in Salo and by expanding K-rauta stores in Lappeenranta, Pori and Haabersti, Estonia.

In 2010, Rautakesko continued to increasingly leverage synergies across all its operating countries, particularly in product sourcing.

Major focal areas in centralised product line management included category management, sourcing and logistics, and stock management. Rautakesko's organisation was revised to support international business models and processes, with the emphasis on retail management. Product line departments are responsible for the centralised formation of joint selections in all countries. The construction of the logistics network covering the whole operating area continued with Itella, a Finnish logistics company. Rautakesko and Itella signed a new transport agreement on warehouse distribution in Finland.

The K-rauta chain's new design and service area business model was expanded. The centralised display area makes shopping easier for customers. In the Rautia chain, special emphasis was placed on the new 'home yard' concept and the sales of houses. In Finland, the online services of K-rauta and Rautia were revised.

'Master Training' in the SMS project (Sales Management System) was organised for retail store employees in Estonia, Latvia, Norway, Sweden and Russia.

Rautakesko participated in the 'Peloton' project organised by Demos Helsinki and Sitra, the Finnish Innovation Fund, the aim of which is to make it easy for Finns to save energy.

Objectives and strategic focuses

Rautakesko's aims for 2011 include sales growth exceeding the market rate and achieving the best customer satisfaction in the sector. As housing construction increases, the building and home improvement market is expected to strengthen in the Nordic countries as well as to experience an upward turn in other operating countries. Demand in the building repair and interior decoration business is expected to remain at a good level, and sales of yard and gardening items will continue to increase. Customers' lack of time, their changing age structure and individual needs are anticipated to further increase the demand for services, such as design, transportation and installation.

Energy efficiency, environmental values and responsibility will gain more importance in customers' purchasing behaviour and consumption habits. More emphasis is placed on real estate's energy consumption and energy-efficient construction. Stores' duties include offering responsible options for their customers. Rautakesko aims to be the best expert and seller of energy efficiency services. K-rauta and Rautia stores provide a wide variety of services that improve the energy efficiency of housing.

The use of the internet to seek information will continue to increase. In the future, social media will have an increasing impact on customers' choices. The use of digital tools, the multi-channel approach and a better understanding of customer needs will be highlighted in business operations, complementing category management and traditional retailing. In 2011, strong development of electronic customer service will continue and the chains' new web services will also be launched in other countries.

Easy and fast shopping and active sales will be emphasised in stores. Related products will be presented in a centralised display area close to desks providing service and design assistance. More comprehensive product information and signage facilitate self-service.

In the agricultural trade, the aim is to develop a customer-driven K-maatalous concept and improve market position. This can be achieved by active sales and offering the best total selection of products and services.

Rautakesko's RAKSA, the new SAP-based enterprise resource planning system, will harmonise the business models which support the chain stores' and Rautakesko's business operations and the retail stores' information systems in all the countries. In 2011, RAKSA will proceed from other operating countries to Finland.

International category management and sourcing will be intensified with the help of more efficient retail management.

The store network will be strengthened. The following new stores are under construction: a Rautia-K-maatalous store in Turku; K-rauta stores in Kuopio and Kouvola, Finland; K-rauta stores in Uppsala and Haparanda, Sweden; a K-rauta in St. Petersburg and two K-rauta stores in Moscow, Russia.

 

Market shares and competitors

Building and home improvement trade

• Finland, market share 37% (Finnish Hardware Association, DIY, own estimate)
• Competitors: Starkki, Kodin Terra, S-rauta, Agrimarket, Bauhaus
• Sweden, market share 7% (HUI, own estimate)
• Competitors: Bauhaus, Byggmax, DT Group and local speciality stores
• Norway, market share 18% (TBF)
• Competitors: Monter/Optimera (Saint Gobain), Maxbo and Coop
• Estonia, market share 18% (own estimate)
• Competitors: Ehitus ABC (Saint Gobain), Bauhof and Espak
• Latvia, market share 16% (own estimate)
• Competitors: Depo DIY and Kursi
• Lithuania, market share 25% (own estimate)
• Competitors: local building supplies and speciality stores
• Northwestern and central Russia, market share 5% (own estimate)
• Competitors: Leroy Merlin, OBI, Castorama, Maxidom and Metrika
• Belarus, market share 7% (own estimate)

Agricultural supplies trade

• Finland, K-maatalous chain
• Principal competitor: Agrimarket chain

K-Group's building and home improvement trade, number of stores, and retail and B2B sales
	Number			Sales, (VAT 0%) € million
	2010	2009		2010	2009
K-rauta*	41	42		546	506
Rautia*	106	107		463	443
Rautakesko B2B Sales				199	162
K-maatalous*	88	90		378	375
K-customer contract stores	32	33		52	56
Finland, total	267	272		1,637	1,543
K-rauta, Sweden	20	20		209	188
Byggmakker, Norway	112	113		864	764
Other Nordic countries total	132	133		1,073	953
K-rauta, Estonia	9	9		52	63
K-rauta, Latvia	9	9		47	49
Senukai, Lithuania	17	17		228	260
Baltic countries total	35	35		328	373
K-rauta, Russia	12	10		204	170
OMA, Belarus	5	4		72	52
Russia and Belarus, total	17	14		277	222
Building and home improvement trade, outside Finland total	184	182		1,677	1,547
Building and home improvement trade, total	451	454		3,314	3,090
* In 2010, one K-rauta store and 50 Rautia stores also operated as K-maatalous stores * In 2009, two K-rauta stores and 50 Rautia stores also operated as K-maatalous stores
Building and home improvement trade segment’s key figures				2010	2009
Net sales		€ million		2,519	2,312
Operating profit		€ million		23.9	19.6
Operating profit excl. non-recurring items		€ million		24.0	11.9
Operating profit as % of net sales excl. non-recurring items			%	1.0	0.5
Capital expenditure		€ million		78.2	84.7
Return on capital employed* excl. non-recurring items			%	3.8	1.8
Personnel average				8,379	8,804
* cumulative average
Building and home improvement trade segment’s net sales in 2010				€ million	Change, %
Building and home improvement trade, Finland				1,163	10.2
K-rauta, Sweden				208	11.1
Byggmakker, Norway				547	14.7
Rautakesko, Estonia				52	-17.6
Rautakesko, Latvia				47	-1.1
Senukai, Lithuania				227	-12.8
Rautakesko, Russia				204	20.5
OMA, Belarus				74	38.5
Total				2,519	9.0
Building and home improvement trade segment’s capital employed at 31 December, € million				2010	2009
Non-current assets				512	494
Inventories				254	196
Short-term receivables				246	222
./. Non-interest-bearing debt				-365	-284
./. Provisions				-2	-4
Capital employed**				645	624
** capital employed at the end of month