Wickes Group plc (WIX) Earnings Call Transcript & Summary

Welcome to the Wickes Capital Market update, and thank you for taking the time to join us this morning. My name is David Wood, and I have the privilege of being the CEO here at Wickes, having joined the business almost 2 years ago in May 2019. At our CMD last year, we gave you an in-depth review of the business. Hence, today, is very much positioned as an update and an opportunity for us to reaffirm the robust nature of the Wickes' strategic framework and unique operating model, both of which have enabled us to thrive through the pandemic, a period during which we have continued to capitalize on our distinctive proposition while at the same time, adapting, transforming and innovating within the business. And critically, accelerating key strategic initiatives that underpin and ensure the exciting future ahead of us. If we look at this morning's agenda, I'll lead us off with an overall update on Wickes, the customer, market trends, and importantly, our strategic framework. Thereafter, Fraser Longden, our Chief Operating Officer, will cover operational earnings from 2020. And Julie Wirth, our Chief Financial Officer, will give an overview of financial performance and outlook, with myself returning to spend some time on future growth. We also have plenty of time for Q&A at the end of the webcast. So let us start with an update on Wickes. Well, Wickes is a successful, growing, cash generative and profitable home improvement business, a business with real clarity of purpose to simply help the nation feel house proud, a highly resonant purpose as the nation seeks to improve both their homes and gardens as we spend more time in them with an outlook for this trend to continue. We have a highly distinctive and differentiated proposition to the competition, which is underpinned by our uniquely balanced business, with revenue split between our 3 customer segments of Local Trade, Do-it-for-me and DIY Retail and critically, offering the best exposure to the fastest-growing sectors in the market. We are a digitally-led and service-enabled business, fulfilled by a low-cost, efficient and totally integrated operating model, all powered by data-driven insight. The combination of our digital capability and uniquely balanced business has afforded us great resilience in the face of the pandemic. And our proven levers for growth remain valid with more to go for, resulting in strong cash generation and capacity for shareholder returns. With all of the above being delivered by a highly engaged team of colleagues with an unwavering belief in the Wickes brand, a winning culture and a desire to grow the business responsibly. The Wickes team successfully operates the business in the large and growing GBP 25 billion U.K. home improvement market, a market with solid fundamentals that have supported a CAGR growth rate just shy of 2%. Wickes continues to significantly outperform this market, growing share and increasing revenues to GBP 1.35 billion, delivering a CAGR growth rate of 4.8%, more than double that of the market and all from a largely consistent total square footage, a growth rate driven by true digital leadership. We have increased our digitally-led sales from 50% to around 2/3 of all sales now emanating in the digital space. Our home delivery business has grown by over 120% in 2020. Our click & collect offer by a staggering 450% over the same time period. Our digital trade loyalty scheme, TradePro, has experienced double-digit membership growth, and we successfully launched our digital-only kitchen and bartering showroom journey in the second half of last year. The growth of our digital services has supported a staggering rise in our digital customer base from 2.4 million active digital customers last March to well over 5 million today, driving a huge injection of brand-new customers to the Wickes brand. We successfully installed more than 26,000 kitchens and bathrooms in customer homes during 2020 despite the impact of lockdown and showroom closures. And we are hugely encouraged by the growth in attachment rates of tiling and flooring installation projects when customers buy a kitchen or bathroom from us, driving up the average order value. And we have seen record customer satisfaction results with an overall excellent rating for our installation service exceeding 85% and likely to recommend equally as high, with the Wickes multichannel business being successfully operated end-to-end by 8,000 colleagues across 233 stores. Now it is clear that pandemic has created both customer motivation an opportunity for home improvement. And alongside this, we have also witnessed key consumer trends compound further throughout this period. The continued rising expectations around increased convenience and speed of service, demand that we simplify ranges for ease of choice and improved availability offer more flexible delivery options and operate smaller store formats for ease a shop. A desire not to compromise on value and quality requires simple, clear pricing, clarity of product choice through good, better, best tiering and that we give certainty and assurance of guarantee or more carefully considered and higher-value projects. The rapid growth of digital is putting transparency of price, stock and range in the customer's palm. It's enabling retailers to achieve scale and national coverage at pace and critically driving greater utilization of physical space, space, that Wickes continues to repurpose to match the accelerated growth of our home delivery and click & collect store operations. And digital is increasingly the primary source of inspiration and information for customers embarking on home improvement projects, a trend not unsurprisingly heightened with a new younger wave of home improvers. Customer desire the betterment to live in a better home, combined with an increasing need to address the environmental impacts of our aging housing stock is driving the long-term growth of local trade and, in particular, Do-it-for-me, as customers seek one partner to fulfill major home improvement projects. That said, the pandemic has rekindled our love affair with DIY to improve our homes, with many new customers flocking to undertake the more frequent, lower skill projects such as refreshing a room with the latest color or improving the look of the borders in the garden with some decorative park. These trends continue to increasingly lead customers to complete home improvement projects through 3 distinct routes, that of Local Trade, Do-it-for-me and DIY. Home improvement projects can range from those that are high skill, cost, effort such as a lot conversion that will require a local tradesmen, all the way across to those with a low skill costs and efforts, such as putting up a shelf and very much the preserve of DIY. However, in an environment of declining skill and scarcity of time to project manage local tradesmen, customers are looking for certainty, a turnkey solution, one partner to provide the project service from concept to completion, Do-it-for-me. Wickes is a uniquely balanced business across all 3 customer routes, with revenue typically split evenly across each of Local Trade, Do-it-for-me and DIY, providing not only greater resilience to customer trends, but importantly, greater exposure to the faster-growing sectors of Local Trade and Do-it-for-me. At this point, it's worth noting that providing for all 3 customer routes is a point of operational efficiency and inventory productivity. At the end of the day, the product is required to get the improvement project done but all the same. It's simply the end consumers' choice as to how they complete their project, Local Trade, DIY or how Wickes execute. Covering all 3 routes also supports the steady profile of customer footfall across the trading days and week. Early mornings are Local Trade focused as they pick up the materials for the day with the rest of the day very much DIY and Do-it-for-me. And if we look across the week, Monday to Thursday, are busy with local tradesmen; Friday to Sunday, very much the domain of DIY and Do-it-for-me, all of which results in industry-leading sales densities. Such efficiency enables us to flex our proposition to win on what matters most to the customer by journey. Local Trade save me time, save me money; Do-it-for-me, inspiration, expert advice, great end-to-end service, certainty and guarantee quality installation; whereas for DIY, simple, clear choices, value and range, flexible delivery options and product and project help. Our balanced business across all 3 customer routes also means that we do not face any specific competitor, but a wider competitive set. Hence, why we view ourselves as a home improvement business and more than just DIY, a business that captures the full breadth of the market growth opportunity. As previously outlined, Wickes operates in the large and growing GBP 25 billion home improvement market, a market where in recent years, both the Do-it-for-me and Local Trade sectors have been driving overall market growth at close to 4% and 3% CAGR, respectively. However, in 2020, the pandemic challenge growth in these sectors impacted by prolonged showroom closures and lockdown impeding the ability for local traders to access customer homes. This impact has been wholly offset by what many term a boom in DIY as the pandemic has equally proven a strong catalyst for DIY activity, which has maintained the overall market scale at GBP 25 billion. I will cover off our perspective or market outlook later in the presentation. However, it's worth briefly touching on the robust fundamentals that underpin growth. Fundamentals such as an aging housing stock. Of the 24 million private homes in England, the lion's share are well over 50 years old. This generates a significant and growing need for repair, maintenance and upgrading. And in particular, the need to ensure our housing stock is energy efficient with more than 27% of the U.K.'s carbon emissions coming from the residential sector. Housing transactions, for the most part, have remained stable at GBP 100,000 per year with the recent stamp duty holiday creating a material spike in numbers of properties sold as we've moved into 2021. And when we move, we tend to seek to improve and, in particular, invest in larger ticket projects such as a new kitchen or bathroom. Although we should be mindful that lower consumer confidence can impact the propensity to improve your home, the market has been growing sustainably despite historic low levels. And the step change in the savings rate, seeing some GBP 150 billion plus extra sat-on deposit does indicate the potential for pent-up demand on more major home improvement projects. As market fundamentals remain solid and consumer trends compound, we have a clear framework to continue to win, a framework guided by our vision, mission and, importantly, our purpose, the why Wickes exists to help the nation feel house proud. A framework that has the customer proposition at its heart, reflecting what matters most to customers through each of the 3 routes to project completion, with all 3 propositions being enabled by our highly engaged colleague teams, greater colleague engagement drives better customer service, which, in turn, converts to better growth. Growth, we ensure, is delivered responsibly, the responsibility to back our people, to support the communities we serve and to minimize our impact on the environment. And finally, our foundations, the key components of our efficient integrated operating model. Simple curated product ranges, providing ease of choice and greater availability for customers, a truly digitally-led sales approach that in turn drives a unique service model structured to meet the needs of each customer journey. However, the customer chooses to shop with us across a low-cost, right-sized physical estate, all of which ensures we can offer customers convenience, choice and outstanding value. So how did our framework service in 2020? Well, if we look through the lens of our performance journey across the course of the year, it illustrates the robustness of our balanced business model and highlights the agility of the Wickes team. The yellow line is total Wickes like-for-like; the blue, Core like-for-like, our Local Trade and DIY customers; and the red, our kitchen and bathing showroom business or Do-it-for-me. Overall, we made a good start to the year with healthy total sales growth driven by a strong Core performance. March lockdown witnessed the closure of our stores and showrooms. We swiftly and successfully pivoted the business to a light operating model, running our physical network in dark mode and only serving customers digitally through click & collect and home delivery. Colleagues were quickly picking as many click & collect orders in 6 days as had previously picked in 6 months. And that's despite us having tailored the range of products on offer to truly essential lines only to match with our essential retail status. We reopened our stores in mid-May and with our DIY proposition powering Core sales to a strong and consistent market outperformance and delivering in excess of 30% like-for-like in the second half. With our showrooms totally closed for 2 months during lockdown, we continue to innovate rapidly developing our virtual showroom customer journey. This supported a far better-than-expected performance in the second half of the year despite a subdued Do-it-for-me market, where customers were simply more cautious around engaging in bigger home improvement projects and having tradesmen in their home at that time. So overall, like-for-like performance for the year was plus 5%, a very strong Core plus 18.8% and a 27.8% decline in Do-it-for-me. Our digitally led and service-enabled approach has ensured yet another year of growth in a truly tumultuous environment, where our agility and digital capability has resulted in superior performance in winning digital customer visit share post the first lockdown. This line chart illustrates the growth of customer visits to both our and 2 key competitors online stores. It's like a footfall counter for a digital shop. Winning greater visit share growth, combined with a doubling of conversion rates when customers come over our virtual door, has been central to our digital sales success. Encouragingly, we have sustained this performance into 2021. I would now like to hand over to Fraser Longden, our Chief Operating Officer, to review our key operational learnings from the last year and how they're forming, how we shape the business today.

Thank you, David. My name is Fraser Longden, I am the Chief Operations Officer here at Wickes. At Wickes, that means I look after the stores, the fulfillment center, the distribution network and our installations business. I've been with Wickes for 6.5 years and in my current role for the last 3.5. At the Capital Markets Day in 2019, I shared with you our customer proposition across trade, DIY and Do-it-for-me. I'm not planning to cover these again today as everything I re-shared then remains relevant. I also covered how an efficient and integrated model underpins our value proposition, in particular, calling out our curated product ranges, digitally-led approach, distinctive service model, our low-cost rightsized estate and our approach to simple, clear pricing. Throughout 2020, despite the pandemic and to be fair, in some cases, because of the pandemic, we've continued to make progress in all of these areas. I'll go into more detail around digitally led and our service proposition in a minute, but first, just a quick update on the other 3. During 2020, we updated a number of ranges. The most notable of these were bathrooms, screws, nails and fixings and paint. In all of these, we not only updated the products, but also continue to curate the range, reducing the number of SKUs and curating improved store efficiency by increasing the volume of products on display for the fastest selling lines. All of these range views have seen significant growth. We're in the process of implementing a review on timber, which is our biggest category, and the early signs are extremely positive. We also continued with our revamp program, not only launching 6 full revamps, but also, as I will share later, taking quick low-cost action in 37 stores to flex the footprint and create more storage space of our click & collect and home delivery offer. And we've continued to simplify our pricing proposition, making it even more clear and compelling. Strong, clear, transparent price points, delivering price leadership, both for customers searching digitally and in our stores. We stepped back from a number of promotions in 2020 to balance both activity and stock availability challenges, mostly driven by factory closures during the first lockdown. The most notable stock challenge during 2020 was plaster. And we saw a brand new breed of digital savvy plaster hunters. They would search availability nationwide and arrive at 5 a.m. on delivery days to purchase their 5 bag maximum. Thanks to the exceptionally hard work of the commercial and supply chain teams. Availability improved throughout 2020 and, frankly, held up significantly better than I saw in many of our competitors. Our digital growth in 2020 was outstanding. We drove over double the number of visitors to our website. And through a program of continuous improvement in the customer experience and by building out richer, more engaging content, we also doubled the conversion rate of these visits. During the peak of the first lockdown, this equated to nearly 8 million visits in a week. As David showed earlier, this was a market-leading level of growth. Last time, I described that about half of our customers started their journey with this digitally. During 2020, this increased to nearly 2/3. We have driven growth in nearly all areas of this with strong expansion in traditional e-commerce sales, TradePro participation, digital showroom leads and customers searching online and purchasing in-store. The only area that drop back was our online in-store, OLI for short, digital sales as social distancing made it easier for customers to complete the transaction at home. Volumes in this area remain below 2019, but are improving. This also means we nearly doubled the size of our digital customer database. While the biggest growth was from DIY customers, we also drove double-digit growth in our TradePro customer database. Critically, this large volume of increase did not lead to a reduction in quality. Our new digital customers are behaving exactly in line with our existing customers in terms of frequency of shop and spend. This has created a wealth of data, and David will cover how we are using this to increase repeat business in the levers of growth section later on. Of course, an extremely popular and successful website led to unprecedented growth in digital transactions. In fact, as David has mentioned earlier, for the whole of 2020, we delivered over 450% growth in our click & collect business and more than 120% growth in our home delivery service. This growth was not from a small base. During the first lockdown in April alone, we captured nearly 1 million click & collect orders and over 350,000 home delivery orders. While this growth slowed our sales in lockdown periods, it was still an exceptionally strong 280% growth in click & collect and 105% in home deliveries. We're not expecting to repeat the spikes created through the lockdown, not for a little while anyway. But customer behavior has clearly changed as they enjoyed the simplicity and ease that our digitally-led, service-enabled model delivers. We've also seen increasing levels of customer satisfaction across the channels. And consistently, over 65% of customers record themselves as extremely satisfied, the top score on a 5-point scale. Thanks to our digitally-led, service-enabled approach. This huge digital growth made our store estate more, not less productive. In fact, while nearly 2/3 of our sales started digitally, 98% of our total sales are serviced through the stores. All stores service both click & collect and local home deliveries. We were able to deliver this enormous growth and the huge spikes because of the clarity of our 4C model. The work we completed during 2019 to embed this model meant that we can relatively easily pivot the business to meet the changing shape of demand. I say relatively easily because we already have the capability, systems, processes and skills in place. But I do want to recognize the enormous can-do attitude across the business that fueled the effort. The teams have simply been outstanding, delivering consistently every day for their customers. And frankly, I couldn't be more proud of them. The 4 digitally-led customer journeys, our 4C model covers are: Do-it-for-me, having researched and started your journey online, a place to interact with the products, designs and services to create your dream project; Order Fulfillment, where we carefully pick the stock for your click & collect or home delivery that you ordered online; Assisted Selling helped to navigate our extended range to find a perfect solution and to access the full inventory of local stores, ensuring our colleagues can always say yes, and help you with your project needs; and Self-Service, having check suitability, availability on price online, a quick and easy process to self-service our products. All 4 areas are underpinned by our service behaviors: approachable, curious and resourceful. Our colleagues are welcoming, interested in what you're trying to achieve. And in the digital world, no where to find the answer to your question. The enormous spikes in demand also gave us the opportunity to see firsthand where some of the pinch points will be in the future. On the back of this, we have been developing a number of enhancements across the digitally-led service-enabled approach. For example, we are developing and deploying a new handheld technology to improve the efficiency of our picking activity and a new digital home delivery system capability. We have increased the storage in 37 of our highest delivery volume stores. This was done at speed 3 months at a very low cost, GBP 35,000 per store on average and has both removed storage of these orders from the shop floor and allowed us to future-proof future volumes. In total, we have created 26,000 square feet of additional storage space without impacting store ranges and planograms or compromising the format. We will continue with this program during 2021. We've developed new thinking to improve our revamped stores. This will feature in the stores revamped in the second half of this year. And while we are keeping the key characteristics of our successful revamp program, we are building an additional functionality to balance across all 4 areas. It was, however, a more challenging year for our Do-it-for-me business. During the first lockdown, the teams were furloughed as it was not possible for us to deliver our usual high service, close contact customer journey. A few of the team remain to help us not only develop COVID security person delivery and installation protocols, but also a fully virtual contactless customer journey. Outside of lockdowns, the Do-it-for-me business returned to a normal level. The whole design consulting team have been trained in this new virtual approach and supported with the necessary equipment. Our showrooms are once again closed, rolled on the 12th of April, but the whole team have remained of furlough and are busy servicing customers through the new virtual capability. This is supported by a virtual showroom tool where customers can see the ranges and interact with them. Within the first 10 weeks, over 1 million customers not only visited the tour but interacted with the product. The average dwell time just in the virtual showroom is an impressive 30 minutes. Or in other words, during the first 10 weeks, nearly 27,000 hours were spent by potential customers discovering our beautiful range of products. The new virtual capability will be an important part of our offer even after the pandemic. A hybrid service allows us to tailor the journey around individual customers and this not only improves our offer, but creates efficiencies. It also allows us to remove geography as a constraint. As a result of this, we have optimized the team size. Despite the showroom closures, it remained a strong year for digital growth in Do-it-for-me. A particular note is the strong increase we're seeing in leads generated through paid social media and our influencer activity. In 2020, this channel generated nearly 12,000 inquiries, an increase year-on-year of 430%. This helped our total web inquiries increase by 71% and through improvements in conversion, our web leads increased by 77% for the full year. Digitally-led web leads now equate nearly half of our leads and create another strong data capture opportunity. We have seen continued interest in our extended Do-it-for-me offer. We have now sold over 20,000 tiling and flooring projects, and we consistently have a 90%-plus attachment of tiling installations to bathroom projects. And we've also been busy developing the next categories to offer an installation service with. For example, last year, we introduced the capability to design workspace into kitchen designs to support the changing use of space in our customer homes for both work and schooling. A brand-new fitted home office proposition has just launched. David will cover more about future Do-it-for-me opportunities in the levers for growth section later. We've also now stayed on our commitment to build a sustainable, responsible business. We have seen strong progress across all 6 of our diversity and inclusion programs. Once again, involving the whole team through a packed year of celebration, education, honest conversations and new initiatives to create a business where everyone is welcome and can be their authentic self. Despite an extremely challenging year for the teams, both personally and professionally, the 2020 engagement survey that was run in the autumn last year recorded a consistent high level of engagement across the business at 70%. As I shared last time, the critical roles, regional leaders, store managers and design consultants recorded exceptionally high levels of engagement, and this remains true in 2020. We also continue to enjoy high levels of retention. This stepped up to 93% amongst our store managers. As we move forward, we have agreed the following 4 areas of focus for us to support creating a truly sustainable business. Everyone is welcome at Wickes' diversity and inclusion, developing skills in our communities, apprenticeships, protecting the environment and responsible sourcing to help customers create more sustainable homes. We continue to drive action around these. For example, we launched a brand-new installer apprentice scheme at the end of 2020, which will take 48 new apprentices a year through a full-on and off-the-tools apprenticeship program. This will not an equip them to install a kitchen or bathroom, but also help them to set themselves up as an independent installation business. This program is attracting candidates from a broad range of backgrounds, genders and ethnicities. We were thrilled that our efforts around diverse and inclusion were recognized in the Financial Times Global Leaders Index 2021, where we indexed as a top 10 retailer. And as you can see on this slide, we have also set some poll targets and created the structure and governance to make sure these are achieved. The governance includes a Board-level ESG Committee. So in summary, 2020 has been a year of progress across the operations. Our digitally-led, service-enabled approach has been through the toughest stress test imaginable, and it delivered for us. The pandemic has given us the opportunity to further understand and develop this model so that we can continue to create the space for future growth. We know we can deliver volume, and we know our customers love this service. While the pandemic forced closures in our Do-it-for-me business, we have developed new capabilities and can see a strong future pipeline of business. We've attracted and retained new digital customers, creating an even richer pool of data, and we made progress in developing the business in a sustainable way. And most importantly, despite the huge difficulties we all faced during 2020, the teams remain committed to and engaged in our success. Thank you. And I'll now hand you over to my favorite Chief Financial Officer, Julie, to take you through the financial framework.

Thank you, Fraser, and good morning. I am Julie Wirth, the CFO here at Wickes, and I've been with the business for around 2.5 years. At our Capital Markets Day last year, I gave some detail on the basis of preparation, reporting framework and relative profitability across different parts of our business. Today, I will focus on our performance over the last year, together with our capital allocation priorities and current outlook. The Wickes business continues to be underpinned by a strong financial framework, which has delivered compound annual revenue growth of 4.8% over the last 7 years. And this compares to market growth of 1.9% over the equivalent period. Our rightsized flexible cost base has proved very resilient over the last year, enabling significant Core volume growth whilst driving productivity in our key operational areas of distribution and stores. There have been some shifts in our cost to serve, which I will talk to, some of them temporary, some of which are likely to sustain as we move forward. We remain very confident about our investment program, albeit that capital investment in 2020 was held back as we responded to the challenging trading conditions. Overall, this framework continues to deliver strong returns and cash generation. Revenue has increased consistently over the last 3 years and has proved very resilient in a period of significant disruption through 2020, reporting 5% like-for-like sales growth. As a reminder, our cost of sales includes distribution and customer home delivery fulfillment costs. And 2020 has been an unusual year where COVID restrictions have influenced a step change in digitally-enabled sales and these in turn have been supported by higher levels of direct-to-customer home delivery. Operating profit remains strong in 2020 at GBP 82 million. This result does not include any benefits from government support in the form of rates or furlough and has absorbed critical investment to keep our colleagues and customers safe. Let's look in a little more detail at the influencing factors. We reported Q1 like-for-like sales growth at 4.9% despite an estimated negative impact of 1.9%, primarily in Do-it-for-me sales as a result of moving into full lockdown towards the end of March. Core was already showing strong growth of plus 9.4%. Do-it-for-me was a little more variable, but have been indicating encouraging signs of lead growth in the latter part of that quarter. Despite operating for the best part of 8 weeks in dark mode through Q2, we delivered overall Core sales growth of plus 3.1%, and this started to grow dramatically as we reopened our front doors to customers from the 14th of May. Q2 shows the impact of a Do-it-for-me business essentially closed, substantially no orders, no product deliveries and no installations as we step back and considered how we could operate this part of the business in a COVID safe way. It is worth noting that Do-it-for-me sales are recognized on a delivered not ordered basis through the financial results. Q3 and Q4 show consistent patterns of very strong Core growth. The real engine of this was in DIY rather than Local Trade across a broad range of categories with increases in both average order value and the number of transactions. Growth returned from Local Trade in the latter part of the year, and we remain encouraged by the opportunity here. We reopened Do-it-for-me in late May, having established safe ways of operating and developed entirely new digital capability. However, demand remains subdued, supply challenges sustained through the year and some customers remained cautious towards installation, i.e., having tradesmen in their homes. What we are now consistently able to deliver is a credible, digital and safe customer journey, ensuring that we maximize the sales opportunity despite ongoing restrictions. So overall, like-for-like sales growth for the year was plus 5% with a very strong Core performance at plus 18.8% market beating and having taken market share and a 27.8% decline in Do-it-for-me with what we believe could be pent-up demand to come. The gross profit margin declined by 100 basis points year-on-year. There were some positive influences on this performance, which included operational leverage through distribution with the Core volume of activity increasing significantly. This led to a number of initiatives across our transport and warehouse operations to drive efficiency. Against the backdrop of strong demand, promotional activity was paused to protect stock availability and minimize operational change. There was also reduced Local Trade participation throughout the year, but particularly in the early lockdown period. Overall, there was no notable impact on the gross profit margin from the change in product mix between Core and Do-it-for-me. The beneficial margin rate impacts were more than offset, however, by a dramatic increase in customer delivery participation. You will recall, Fraser talked about a doubling of home delivery for the year, which was magnified through the initial period of lockdown when we operated our stores in dark mode. There was also very specific cost investment to operate COVID secure distribution environments, cleaning, PPE, et cetera. To support future modeling, we have thought to give you a view of how these impacts will play out in normalized conditions. I will come on and talk specifically to guidance for 2021, which is clearly not quite yet into normalized territory. In normalized conditions, we would expect to see ongoing benefit from operational leverage, the reversal of promotional and local trade benefit and partial unwind from customer delivery participation in COVID secure operations. The mix impact from Core and Do-it-for-me will also continue to evolve. Notably, as we expect the installation participation increase, which delivers a lower level of gross profit margin. In terms of customer delivery, we believe customer behavior and, therefore, underlying trends will continue at a higher level, albeit without the market step changes we saw during the first COVID lockdown period. The selling and administration cost to sales ratio increased marginally by 40 basis points year-on-year. Key factors positively influencing this include operational productivity through our stores, again, benefiting from a high volume of Core sales. We also focused on tight control of other costs, including savings, for example, in marketing, as we pull back from promotional activity. These benefits were more than offset though by additional costs to make our operational environments COVID safe of around GBP 9 million. And this again included, for example, cleaning, protective screening and marshaling in stores. We also carried a level of unproductive cost, notably during the first lockdown in our Do-it-for-me sales, delivery and installation resource. This is estimated at around GBP 7 million. Overall, we repaid all of the GBP 39 million of government support. Worth noting that other retail businesses may well have retained elements of this support within their results. In normalized conditions, we would again expect to see ongoing benefit from operational leverage and a continued focus on costs. We would not expect to have any unproductive results moving forward. However, an element of ongoing cost to protect COVID secure operations is likely. This waterfall chart summarizes year-on-year profit movement. And as a reminder here, these results exclude government support that was available to us of GBP 39 million, which has subsequently been repaid. We see sharply contrasting performances of Core and Do-it-for-me, together with the on cost of operating in a COVID secure environment. The customer delivery fulfillment, called out here at GBP 7 million, is an estimate of the costs over and above what we expect to be an ongoing run rate, and this was notably experienced through the first lockdown period. As I have already noted, there is likely to be an element of ongoing investment to protect COVID secure operations, which cost GBP 9 million for 2020. Site closure costs relate to a small number of stores and one of our ancillary distribution facilities, which are not expected to recur moving forward. Store investment is likely to be ongoing as we step back into our full refresh and refit program. Overall, there was a modest decline of GBP 16 million in operating profit from 2019 to 2020, a really strong performance given the disrupted trading conditions, and this reflects a proactive and agile way in which we led and evolved business during this period as outlined earlier by Fraser. Capital investment was GBP 18 million in 2020 versus GBP 30 million that we had plans to invest. We proactively held back on refit and range review investment in the year to support the overall group cash position. We do see this reduction as a deferral rather than a change in strategy and remain confident of strong investment returns. Some good examples to illustrate this include new format stores, which continue to outperform heritage format stores with sales per square foot some 32% stronger. And of course, our investment over recent years to strengthen our digital capability has surely been proven through a year in which our digitally-led sales have increased from around 50% to around 2/3. Moving on to our capital allocation priorities. We will continue to invest in the business to drive growth, progressing our store refit program, developing our digital and IT capability, together with supporting Do-it-for-me opportunities, such as the development of our bathroom and kitchen displays in our share rooms. I have previously indicated an annual level of investment of GBP 30 million, which we'll keep under review. Over the next couple of years, there will be additional cash investment of around GBP 40 million to conclude the IT separation of Wickes from Travis Perkins. This transition will, alongside achieving separation, modernize our IT infrastructure, including, for example, moving from server to cloud hosted solutions. This investment is expected to be treated as an adjusting item through the income statement. We will maintain a strong balance sheet, bringing forward GBP 130 million of cash at the start of 2021 and being mindful of our ongoing IFRS 16 lease debt obligations, which stand at just over GBP 790 at the end of 2020. Liquidity will also be supported by an underlying RCF facility of GBP 80 million. We recognize dividend as an important part of shareholder return that balances with the requirement to lesser growth. We intend to operate a progressive policy, starting with a 30% payout ratio on an adjusted post-tax profit basis, with the first interim dividend due to be paid in the second half of this year. Our capital allocation priorities are underpinned by strong cash generation from operating activities, where working capital is broadly neutral with receipts flow in our Do-it-for-me business impacted by consumer finance. Overall, our capital allocation priorities will balance investment for growth and appropriate shareholder returns. Our cash flow model is relatively straightforward with a neutral working capital position and annual capital investment broadly aligned with depreciation. A few areas to highlight not mentioned so far. We are guiding to incremental costs associated with operating as a plc, which includes new share-based remuneration schemes of GBP 7 million on a full year basis. And just to confuse us all, 2021 will be a 53-week year. Further technical guidance is laid out on the slide, and I will be very happy to take any questions on this at the end of the session. The outlook for this year continues to be influenced by the ongoing impact of COVID restrictions with our Do-it-for-me showrooms currently remaining closed. Equally, the potential for further lockdown restrictions also remains uncertain. Influenced by this, our performance in the current financial year has continued to follow the performance trends seen in the second half of 2020. Core sales remain strong and continue to be underpinned by our well-developed digital and fulfillment capability. This growth is expected to moderate against more challenging comparatives as we move into the second half of the year. While sales remain robust, this benefit has been offset somewhat by costs associated with continued high participation of customer delivery and assuring that we operate in a COVID safe environment for our colleagues and customers. Do-it-for-me orders were around 50% lower year-on-year through our key winter sale period in January and February, as our showrooms remained closed. The introduction of our virtual customer journey has enabled us to maximize the opportunity in the market through this extended period of disruption. We remain confident of a recovery in Do-it-for-me sales with pent-up demand likely to come through as lockdown restrictions ease. And this is evidenced currently by continued high levels of inquiries. Whilst the outlook remains uncertain, we expect to continue to deliver sales growth ahead of the broader home improvement market for the year as a whole. Quarterly like-for-like sales growth KPIs are likely to be highly variable as we annualize an unusual trading pattern in the prior year. Thank you. And I'd now like to hand back to David, who will take us through growth levers.

Thank you, Julie, a helpful overview of the numbers. As I have outlined, Wickes is a successful and growing business, and we have a clear framework that gives us confidence in our ability to drive further growth through our distinctive customer proposition and strong operational foundations. However, before I take you through the levers for growth, I wanted to review our perspective on the broader home improvement market outlook, a market where research confirms underlying growth potential in all sectors. Local traders, while impacted by COVID restrictions in the last year, see a very positive road ahead. They are quoting a healthy pipeline of work and are optimistic about the future with the vast majority of households allowing tradesmen back into their homes. This naturally drives an increased forward demand for materials with over 80% of tradesmen expecting to buy more of the same volume. Materials, they will look to source from trusted, reliable retailers who know best how to serve their core needs of saving them both time and money. The Do-it-for-me sector looks set to benefit from delayed pent-up demand. Excess consumer savings are still on deposits and more ambitious project plans are certainly on the horizon as customers seek to improve and repurpose space as the home and garden becomes significantly more integral to life. Combined with 75% of office workers looking to work from home more and housing transactions seeing strong growth, the Do-it-for-me outlook looks encouraging. And when we move, we seek to improve, particularly on the bigger-ticket items such as the kitchen and bathroom. The pandemic has clearly proven a powerful catalyst in rekindling our love affair with DIY to improve our homes. Customers have developed the confidence to take on projects and highlight the emotional rewards of completing a DIY project and the overall health and well-being benefits. Seeing it as an activity that is both enjoyable and good for them and, as such, are planning to continue renovating other areas of their homes, with the vast majority expecting to do more and spend more over the coming years. But in addition, a cohort of particular interest is a new wave of young, first-time DIYers, millennial DIYers who have not only enjoyed doing DIY, but have a higher propensity to enjoy it, believe their skills are enhanced because of it and have a genuine appetite for more. And naturally, as digital natives, almost 3/3 of this group are spending more time looking for inspiration and finding that inspiration in digital channels with content-rich digital customer journeys being critical to drive engagement and conversion with this audience. At Wickes, we already experienced 20% higher average order values when a customer engages with our digital content when shopping online. This sees Wickes well placed to capitalize on what could be a structural change for the DIY sector as this new wave of millennial DIYers provide a platform for future growth. So looking forward, our belief, given customer trend and projection, is that all sectors within the market will return to growth, reestablishing a CAGR growth rate ahead of the historical 2.5% despite the flattening of GBP 25 billion in 2020. Growth driven by Local Trade and Do-it-for-me as customers reengage with bigger projects and now accompanied by a DIY sector experience and the benefits of a new wave of customers, first-time DIYers. We have a strong portfolio of growth leaders to win in this market that are relatively immature with more to go for. I'll briefly headline winning for trade, DIY category wins and enhanced store service model to allow for more emphasis on accelerating Do-it-for-me, our digital capability and store refits. At the heart of winning for trade is TradePro, a very simple, entirely digital scheme for local trade with over 550,000 customers are already generating over GBP 225 million of revenue. We know TradePro drives greater frequency and higher order values. A TradePro member is up to 5x more valuable than the average customer. So a key initiative is to continue to grow this customer base by engaging new members and deepening the loyalty of existing users with added value digital rewards and more personalized offers. And it's our ambition to double the size of this scheme. We have consistently and significantly outperformed the overall DIY market throughout 2020. Our blueprint of curated range, simple pricing, strong availability and convenient local fulfillment has proven very sticky with new customers. The opportunity exists for us to continue the successful strategy of addressing our lower market share in major DIY sectors, such as decorating, flooring, tools and garden to broaden customer appeal and drive footfall, both online and in-store. Fraser has covered our enhanced store service model already. However, it is worth reaffirming that flexing our 4C model has been central to our agility and resilience in the face of the pandemic. And we have learned. We've adapted and recalibrated our approach to ensure we continue to capitalize on the growth opportunity our unique service model presents. We strongly believe that Do-it-for-me remains a structural growth opportunity in the market, given consumer trends. We have grown our Do-it-for-me business to a material scale over the last 5 years and the next 5 should be no different. There remains plenty of opportunity to increase penetration within our Do-it-for-me heartland of kitchens and bathrooms. Investment in product innovation, a virtual journey at showrooms and the overall store refit program will underpin this. However, accelerated growth will come from extending our portfolio of services. Our very distinctive and repeatable process in Do-it-for-me provides us with a unique ability to do this. Last year, we successfully rolled out our showroom tiling and flooring service attached to a kitchen or bathroom installation. We also swiftly responded to the pandemic by extending home office space into kitchen design. Our approach has been to test and learn and scale fast. Hence, we have launched our new full home office design and installation service, we can design and install your home office from concept to completion, wherever you would like it in your home. And last week, we commenced trials for our tiling and flooring installation service in stores, not just showrooms. So when a customer buys the tiles or flooring product in the aisle, they can have us complete the project with installation. This will open up our service to many more project opportunities, not least as 75% of all flooring projects are outside of the kitchen and bathroom. In the second half of this year, we also plan to test and learn with doors and window installation service through our showrooms. This is an opportunity to capture more of the broader project as invariably, they can involve 2 or 3 projects at once. So for example, Wickes fitting a new kitchen and also fitting the new bifold doors that lead to the garden. Thereafter, as illustrated on the right, a number of new extension opportunities are under consideration to unlock further growth. And as I say, we have a unique ability to do this with increasingly the added ability to truly anticipate our customers' needs and the project they may be about to undertake through data. The strength of our digital and service proposition has led to the incredible growth of our digital customer base to well over 5 million digital customers today, with the vast majority of this growth coming from new customers to Wickes. And with this huge increase in customers, we have seen no real change in average transaction values. Now we are in the process of enriching this database further, having recently launched e-receipts in store and built our card matching capability to drive greater visibility of physical shoppers. We also plan to launch a DIY app in quarter 2, which will certainly support engagement of new younger DIYers. All of this provides us with a rich pool of data on which we can draw insight to personalize actions and ultimately deliver a change of customer outcome, higher engagement levels, increased loyalty and greater retention. An exciting development is our use of machine learning to combine the power of our data with that of the customer's activity in the broader digital ecosystem, Pinterest, Instagram, Facebook, Twitch, et cetera. It enables us to understand both the broader engagement, browsing and buying behavior of customers from which we can start to infer home improvement missions. If we have the power to determine a customer's current mission, say, getting the garden summer ready, we can shift gears from communicating a product to communicating all of the products that fulfill the end-to-end mission, thus delivering a better dialogue with the customer, which in turn, will deliver a better commercial outcome, creating a flywheel effect. Through the data, we have identified a number of most shopped missions. And interestingly, the analysis suggests that only 15% of Wickes customers are buying the whole mission from Wickes. Hence, this approach provides us with a great opportunity to unlock more of the overall value of the customer mission more often. I'd like to share a short video to bring this to life. We call it our Missions and Motivation Engine. [Presentation]

This approach is entirely self-selecting as we are talking to you, the customer about the things you care about. We are showing you that we know you. We know others like you. We care about your projects or mission, and we are here to help. We are passionate about building deep, long-lasting relationships with our customers. Our physical estate remains a truly integral part of the Wickes proposition. While around 2/3 of our sales emanate in the digital space, 98% of all sales directly touch the store. As we continue to successfully expand our digital proposition, it only serves to drive greater utilization of our physical footprint. The strength and effectiveness of bricks and clicks working symbiotically, all of the digital growth without the digital dilution. We have a strong track record in delivering significant returns through our refit program and have completed over 100 refits generating returns in excess of 25%. And we have line of sight for up to 40 more refits in the medium term. Our approach to property is one of quality and not quantity, and we will actively manage our store portfolio through a combination of refreshes, rightsizing, a few select white space new opportunities and, where appropriate, closures. Interestingly, given our digitally-led and service-enabled model, we do not think of our physical assets as stores, but more as local home improvement hubs, a place where customers can come for advice on their project, buy materials, build their dream kitchen or bathroom or simply have us deliver your requirements directly to your door from your local hub. And finally, at the heart of our growth philosophy are our people. Our entire colleague base is hugely engaged with the business and have been the driving force behind our performance momentum. They're hugely resilient and very excited for the future as a stand-alone company. So this is an exciting time for the business, and we have a robust framework for growth and a compelling investment case. Wickes is a successful growing cash-generative and profitable home improvement business, a business with real clarity of purpose to simply help the nation feel house proud, which is underpinned by our uniquely balanced business with revenue split between our 3 customer segments of Local Trade, Do-it-for-me and DIY Retail and critically offering the best exposure to the fastest-growing sectors in the market. We are a digitally-led and service-enabled business fulfilled by a low-cost, efficient and totally integrated operating model. The combination of our digital capability and uniquely balanced business has afforded us great resilience in the face of the pandemic. Our proven levers for growth remain valid with more to go for, resulting in strong cash generation and capacity for shareholder returns, with all of the above being delivered by a highly engaged team of colleagues with an unwavering belief in the Wickes brand, a winning culture and a desire to grow the business responsibly. Thank you for listening. This concludes the presentation. We now have time for Q&A.

[Operator Instructions] We'll now move to our first question over the phone, which will come from Will Jones from Redburn.

Just a couple for me, please. Maybe just focusing around the sales line. Clearly, you've outlined a very good track record of roughly 3% above market growth for a number of years. I just wondered to what extent you think it's fair if we were to say that some of that has been helped, I guess, by competitor troubles, I guess, notably home base over a few years. And just generally, as you look forward, do you see that competitive backdrop in better shape? Or do you think actually that degree of gap can be broadly maintained over time? And then the second is, maybe if you could just help us quantify perhaps you talk about the strong inquire levels in the project-based side of Do-it-for-me and 28%, I think, was a lot of ground last year. Would you be willing to give a view on, I guess, whether that 28% is going to come back pretty quickly when you reopen? Would you be open to regain that lost ground in, say, the first full year?

Well, thank you very much for those questions. Well, I'll take the first. And then I'll pass over to Julie to have a point of view on the second question regarding the Do-it-for-me and its rebound. In terms of overall sales, you're absolutely right, broadly the 3% delta in terms of CAGR capacity. When I look at our business, what makes us unique is that we do address the entire market. If you remember, we have this uniquely balanced business broadly in a typical year, 1/3 DIY, 1/3 Do-it-for-me and 1/3 Local Trade. When I specifically think about home base, obviously, they operate just within that DIY sector. So our overall growth and delta for our business versus the broader market, the home improvement market, is a function, I think, of our unique proposition and less that we've actually sort of like brought up the business specifically within the DYI arena. When I think about home base, I see this is a slightly softer end of DIY as well. Our categories, of course, they have some very different and very seasonal categories and probably more of an overlap with the likes of [indiscernible] range or a Wilco in terms of our home and garden. So I think our unique balance, our difference probably in category focus as a consequence of that is what seeing us grow in this market rather than necessarily spending share from home base. Julie, would you like to have a point of view on the second question?

Yes, sure. Sure, David. In terms of Do-it-for-me performance, I think it's fair to say we're still operating in a restricted trading environment where our showrooms are closed. And whilst we would expect to see some steps back to recover the Do-it-for-me position in overall terms, it's going to take some time to address that full gap that we saw last year over 28%. So we would expect to see some partial recovery this year, but not full recovery. And predominantly, that is because of the ongoing restrictions that we're operating our business within. And don't forget, it's fully worth reminding everyone that there is a bit of a lag between order point and delivery, which will naturally mean it will take some time to rebuild that sales line as it feeds into the financials.

We'll now move to our next question over the phone, which will come from David O'Brien from Goodbody.

Three areas, please, if I could. And firstly, just on leases. And I guess, first of all, did you have any leases renegotiated through 2020? And if so, I would assume there's some savings there given the strength of the brand and the future for Wickes? And then on the same topic, what proportion of the estate is due for renegotiation on leases over the next 3 years? And what kind of savings or what benefits do you expect to flow through? Second area just around procurement. I guess, you've outlined previously was the cost of goods is kind of 15% for our resourcing, 20% U.S., 65% in U.K. Has that changed much over the last 12 months? Or has been any impact of Brexit on any other? And secondly, as we move into a stand-alone entity, what do you think the impact around cost of sourcing product and the supply chain and managing that whole process yourself will be? And then finally, I guess, there's a lot of moving parts and we appreciate that 2020 is a unique year. But if we fast forward kind of 2 or 3 years, what are the aspirations for the group operating margin? Where should we be thinking in our head is the potential there?

Thank you, David. Listen, I'll handle points 1 and -- questions 1 and 3. I think I'll hand over questions 2 and 4 to Julie, if that's all right, Julie. Broadly, in terms of leases, if we look through the lens of refit, which tends to be the barometer for any change on leases, we seek to regear when we refit the store. Last year, we had 6 refits. How do we approach those? I mean our principles approach as we look to regear, we have 3 problems to it. The first is, we look to reduce the rent. The second is we look for a rent-free period. And thirdly, we look for some kind of capital contribution to the refit as well. Now of course, lease-by-lease, landlord-by-landlord, those tunes change, but that's typically how we approach that. And last year, we had 6 refits. I'll handle the procurement question, David. There's been a small intensification of our sourcing from the U.K. So if I look through the line of COGS for our business last year, broadly about 70% of that came from the U.K., which does see us reasonably well insulated versus issues like a Brexit. So I think most retailers are pretty well trailed in terms of going up and down the Brexit hill. So we got into the stride of what needs to be done ahead of Brexit. So I think we're in a great place. So our exposure to Brexit has been minimal, if any, not least just because of, I say, of a very strong U.K. sourcing approach. Julie, would you like to add a chat about the leases of the next 3 years?

Yes. So in terms of lease renewals over the next 3 years, there are a relatively low proportion of our estate actually starts to step up from 2026 onwards. I think the key thing to say, and David already touched on it, at lease renewals, we're often considering reinvestment in stores and getting some contribution towards that. But it is worth saying that the locations in which we operate are highly sought after locations. So we're certainly not a high street retailer where naturally, we're going to see deflation coming through into rent in any market where -- and I think it's roughly emphasizing that. So our sites are highly sought after through some of the discount food retailers and discount retailers more broadly, which will mean some of the reductions in rent that you might see in other sectors will not necessarily be available to us. But we do and we will negotiate very hard to get reductions in rents to renegotiate and get contributions to reinvest in our estate. I think in terms of the longer-term outlook on returns, we've talked about expecting to continue to outperform in the market through the top line. We're very confident around our ability to drive operational leverage through our cost base. So by definition there, we'd expect to see some progression through the level of returns that we get from the business.

We'll now move to our next question over the phone, which comes from Jon Bell from Deutsche Bank.

I think I've got 2, actually. The first one is, can you talk a little about the competitive environment? Maybe what your competitors are doing and how this differs from your own strategy? And the second one really is just keen to explore what we might call the wall of money point. How and what speed do you think this money might hit the market? And how are you preparing for this?

Thank you, Jon. Fraser, would you like to give a perspective on the competitive environment?

Yes, certainly, yes. I mean as David laid out in the presentation, we track ourselves against a very, very broad set of competitors, actually. So it's hard to be very specific about any individual set of circumstances because we have such a unique mix across the 3 areas of trade, Do-it-for-me and DIY. We're obviously cautious and interested in what our competitors are doing and sort of keep an eye on that. But equally, a big part of our focus is building sort of leadership in this category, really, particularly through our digitally-led, service-enabled approach of staying ahead and forward with it. I guess one of the things which is probably on people's minds is in the Do-it-for-me question and sort of B&Q back into installations. And we're really not surprised by that at all actually because they will be seeing the same thing that we're seeing, which is Do-it-for-me is a big growth opportunity, and we want to get the best to be part of that as well. However, there's a couple of things I'll say about that. Firstly, we don't cross over on exactly the same customers. So we tend to service a slightly higher, more premium customer, which B&Q sort of struggles to access through their range. Secondly, they exited for a good reason, having had 20 years of trying to make their installation service profitable and not achieving that. And of course, our business has -- our installation business has been profitable for the last decade. And that takes a real sort of skill of connecting everything up from start to end, right from the start with design and they made all their design consultants redundant as part of that change. And of course, having the really best installers and the really best installers remain extremely loyal to us actually because of the stability we provide and what they've seen in terms of the investments that we've made into their industry through things like our apprenticeship screen. And then finally, if I talk about trade growth for a moment, then as our desires are to continue to grow strongly in the trade market. We want to get up to 1 million customers on that database. But we're not going for quantity over quality. A key measure for us, and that is the repeat volume of spend that those customers bring to us. And we see very little churn in that database as we continue to focus on bringing great quality customers on board.

Thank you, Fraser. And Jon, just coming back to your wall of money, I mean a great question. I think the thing that's encouraging that we see across all 3 sectors, as I touched on just a moment ago in the presentation, is that we're expecting to see good growth through all 3 lenses. Our local traders are describing a very strong pipeline at the moment and are very optimistic as they look through 2021. Likewise, we've seen this behavioral change around DIY. Some of this new blood coming in are showing a very high propensity to continue that trend as well to give some growth through DIY. And then when we look at the foundations of Do-it-for-me, yes, there's a lot of money on deposits, transactions in terms of housing are up and how we want to use our home. Particularly the home office point with close to 3/4 of office workers saying that they do plan to operate more of a hybrid model going forward. I think all of that suggests that some of that wall will come our way. And then you combine that in the broader context of other options that we've got to do, I think holidays will probably still remain quite difficult at the moment. I think people will probably not be spending lots of money on new cars given their travel habits, the more recent months and the outlook for the remainder of the year. So I do think it leaves the sector well placed to capitalize on that money on deposit.

We'll now move to our next question over the phone, which comes from Charlie Campbell from Liberum.

A couple of questions for me. So on the Do-it-for-me side, clearly, some quite ambitious growth plans over the next few years. Just wondering how easy it is to get kind of more installers. It seems anecdotally kind of the company is quite short of installation capacity. So how do you go about securing those? And the second question was just on kind of building materials generally and pricing. I'm just wondering sort of how much visibility you've got in price, sort of how far forward bought you are and, therefore, kind of how much volatility comes through from some of the commodity movements? And maybe tying that all together, sort of what sort of inflation number should we be thinking about for 2021?

Okay. Thank you very much. And Fraser, do you want to have a little chat on installation?

Yes. So I mean, a couple of things I would say there. So firstly, we enjoy exceptionally high retention rates amongst us to install a database. So they are very happy to continue working with us, as I mentioned earlier, because of the stability of business that we can support them with. And many of our installers have a broader skill set already. So our installers for kitchens and bathrooms can do tiling, some of them. Some of them can do flooring. Some of them are already doing sort of doors and windows and other categories in customers' homes. So some of this is also expanding out using our current installer network. That said, we are always recruiting, and we keep that front of mind to make sure that we constantly talking to the very best people out there. So far, we haven't found any strong issues in that actually. We've been able to continuously source the supply levels that we need. And as we step in and start to sort of try some different categories, we've equally been able to find lots of people who actually like the security and support of working with a business like ours because they get a steady pipeline of work and they don't have to find themselves and they don't have to do all the sort of sales end of that process as well. So I feel pretty confident about that.

Yes, I think it's a really good spot, Fraser, in terms of -- we really -- if you think about traders, it's all about saving in time and saving them money. And what we do in particular? We just help feed them with great work. They don't have to find their own needs, they don't have to worry about buying the materials. What we do is we provide them with a great pipeline of work where they can be put into what they do best, which is in store and not have to worry about all the mechanics of running a business around that. Around the scarcity point, I think the other data point I would suggest there is the tremendous growth that we've seen in our TradePro membership. We're seeing double-digit growth in terms of our TradePro membership. We have 2,500 or so install the teams, and they're in great shape. And Julie, do you want to have a chat about future view on pricing?

Yes. I mean in terms of commodity prices, obviously, we're tracking the market very closely. There is certainly inflationary pressure in some elements of commodity pricing, which we're very aware of. There is evidence already in the market of the opportunity to pass that through to the customer. So it's not something that we're overly concerned of from the perspective of dilution of margin necessarily. But we'll continue to track that very closely. We want to remain price competitive and respond to the market accordingly.

We'll now move on to our next question over the phone, which comes from Sam Cullen from Peel Hunt.

I've just got a couple, if possible. You've mentioned a number of times, the kind of the new wave and younger homeowners and home improvers. I'm just wondering whether you we're seeing or expect to see different demand profiles in that cohort and whether that has any impact on, I guess, gross margin or overall profitability of your stores as that cohort growth? And then the second one, coming back on the Do-it-for-me section, do you have an idea where how big the addressable markets are and those are the categories that you mentioned around some of flooring and doors and windows? And what's that -- if you were to capture extent of that market over the next 3 to 5 years, what that might do to the Do-it-for-me section of the business, that would be helpful.

Okay. If I just talk to the new wavers, younger shoppers, I mean, they're coming in, they're coming into DIY in the first instance. So they're tackling the more common and easier projects to do that don't require big cost or big skills. So that tend to be picking up a paint brush. I would just say our digital native is somehow now found an analog skill and they're quite enjoying it. But you're right, they choose to shop with us through digital channels. They choose to find the inspiration as to what they're going to do around the projects through digital channels. So that does see us well placed, I think, to probably get more of our fair share of that audience base as we go forward given our digital strength. And we are well placed, as Fraser discussed, operationally to continue to manage and flex our home delivery and click & collect business to cater that demand in the overall shape of the business and very low cost and operating-efficient model there. In terms of Do-it-for-me as a marketplace, I think that's a little trickier to call to be fair. This is a big market. It's around about GBP 25 billion. Do-it-for-me at this moment in time is probably around about the GBP 5 billion mark or so, but growing. And we have a decent share in there, but there's a hell of a lot of headrooms to go for just within that GBP 5 billion as we stand today. So we're quite confident as we build out these extended services in a very modular way, using our existing skill and our very unique way that we go to market. But once again, we can take some decent share in that marketplace.

Our next question over the phone comes from Geoff Lowery from Redburn.

Two questions, please. I obviously understand the impact of home delivery on your gross margin. Can you tell us what happens to your EBIT margin as home delivery grows in the mix? And second, how much of your -- to home delivery business, could you fulfill from store if the consumer wanted to pick it up that way? I guess what I'm really saying is there a lot of unique or from DC-only range that necessitates consumers shopping for home delivery? Or could it be integrated back into stores in more normal times? And second question, bunch, if I may. Can you just remind us of your sensitivity to minimum wage in the U.K.? And what productivity initiatives are in front of you in terms of mitigating the bottom line impact of that over time?

Geoff, 3 very good questions there. I'm actually going to take the second one first. And Fraser just want to give us a point of view on the home delivery point.

Yes. So good news here, Geoff. I think 98% of this already get serviced through our stores. So every single store is a local delivery hub. And so they are delivering the products, which, of course, that means they already have in the stores already to go. So it's a very easy switch over to customers come back out into the market and back into stores and chose these click & collect and other services. We are there already.

Yes. And we would -- Geoff, we would anticipate as the economy opens up more, that we will see probably shift more into click & collect from home delivery. Geoff, to your point around extended range at our stores distribution center in Northampton, we do hold extended range to direct home delivery through our stores distribution network as well. So that's how we can access the extended range. So people like the things they're buying that are less common and we can still get into people's homes. So we actually have that facility. We call it our multichannel fulfillment center that sits within our stores distribution center. Julie, do you want to -- there's a couple of finance ones there for sure, first was around gross margin and EBIT margin yes, and delivery?

Yes. So in terms of home delivery, so delivery to customers' homes is a higher cost-to-serve model. It is how some of our customers choose to shop. It supports volume growth in our business, which is very valuable and helps drive our operational leverage. It also supports sales, which have a higher AOV than the norm. So there is some translation dilution down to EBIT from that customer fulfillment model. But on balance, it is supporting overall incremental cash profit, which is the really important point for us and is something we're very focused on. So there is some dilution that is helping drive cash profit growth as move forward and supporting operational leverage right through our operational model.

Understood.

Next is with minimum wage?

Yes.

So in terms of minimum wage, we're very aware, again, very focused on the impact of minimum wage. And our operational teams routinely look at opportunities to drive productivity through the model to minimize the impact of that. So we're still -- we talked last year about our cost of sales in this area being below 10%. It remains so. We wouldn't anticipate that changing in the near future.

[Operator Instructions] We'll now move to our next question over the phone, which comes from Warwick Okines from Exane BNP Paribas.

I just wanted to follow on from Geoff's online question. Perhaps you could help us understand how much higher the fulfillment costs were in 2020? I appreciate you've had a rapid growth in home delivery. And as you say, that adds cost. At the same time, click & collect grew a lot faster than home delivery. Maybe if you can just help us with the costs or perhaps the split between the different channels, that would be helpful, please. And then my second question is what sort of product plans do you have for gardening? Perhaps just give us a sense of your plans to expand the range and how broad those ranges might go?

Okay. Warwick, so we talk about a doubling of activity in terms of delivery to customers' homes over the course of last year. What I thought to do on the profit track, though, to try and identify the over and above costs that we incurred last year in response to the initial period of lockdown where the growth in fulfillment was markedly higher than that, and we called that out at about GBP 7 million. So what we're trying to guide to that in normalized conditions, clearly we're not in normalized conditions yet, is what the underlying run rate of that home delivery element is in our overall business. And we have seen even outside periods of lockdown, increased participation of customer delivery off of the back of the experience that customers have had through those lockdown periods. So we try to call out the over and above costs that we experienced last year and to try and give a sense of what the underlying run rate moving forward is likely to be. Clearly, in the immediate term, we're still seeing those high level of run rates because we're still in a lockdown scenario. So hopefully, that's helpful just to give some directional information on that.

Thank you, Julie. And Warwick, just thinking back to gardening specifically, looking through the lens of products, garden is now increasingly one of our largest categories, actually. So it's like garden fencing, sheds and that pie is a big and growing part of our business. Our product plans definitely face much more into the landscaping side of garden and how we innovate and following set trends in those areas. And we've had tremendous success in recent years. And a great example, we'll be even down to a sharply priced sleeper at GBP 10. We test and learn with that sort of 18 months or so ago, and we -- I think we sold about 15,000. And I can tell you now this year, we're selling many hundreds of thousands. So we innovate around the product, we test, we learn and we scale fast around those. But it's much more into the landscaping side of garden. And of course, that's where we want to -- Do-it-for-me as well consider to build our skill set and a very repeatable model in terms of how we add value for customers through installation of a complete project going forward.

And Warwick, just one thing I'd add to Julie, sort of the great answer around the shift in channels is volume is also driving efficiencies for us, and we are really focused on continuously improving our cost of sales in this channel and getting all of the opportunities that come out from that. So rather than fearing it, we're seeing how we can embrace those volumes to really make a business even more efficient and improve the margin rates as we go forward.

Yes. And, Warwick, that has to be the approach isn't it? Because you've got to follow the customer, and that's where the customer is going. So it's incumbent on us to make sure that we just continue to leverage the productivity and the efficiency through that model.

It appears there are no further questions queued over the phone at this time. I would like to turn the conference back over to the CEO, Mr. Wood, for any additional closing remarks.

Thank you, Simon. Look, team, thank you for joining us this morning. It's greatly appreciated. I hope you've got a sense from listening to Fraser, Julie and myself that we are very, very excited about the future potential of our business. And I'd just like to take the opportunity or one final opportunity to sort of remind you of our compelling investment case. So we have this highly distinctive and differentiated customer proposition. It served us incredibly well over the last year as we faced into the pandemic. We do operate in a very large and growing market where we consistently outperform. And that is definitely driven by our digitally-led and service-enabled model. It's given us a strong platform for future growth. So, look, thank you very much for your time today. And well, look, have a super weekend and hope to catch up with many of you soon. Thank you.