B&M’s stellar full-year results have left many of its rivals in the shade, but how did the retailer build its momentum?
The value giant posted an 18.4% leap in pre-tax profits to £182.9m this week and shows no signs of slowing down.
Here’s a closer look at how B&M has delivered.
Lucrative property opportunities
B&M opened 53 new stores in the UK over the last financial year, nine of which were relocations to larger Homestore formats.
The value retailer made shrewd calls on shops that were smaller, less lucrative or nearing the end of their leases and replaced them with nearby, often purpose-built outlets.
It’s a tactic that has paid dividends.
“Our stores get 10,000 visitors a week, so landlords can see that a retail space for us is a win-win, which allows us to drive a harder bargain”
Simon Arora, B&M
The relocation of a store in the Wirral to a new location less than a mile away drove incremental revenue in the catchment area up to £6.5m from £2m.
B&M says that its purpose-built stores offer “substantially higher revenue and profit potential” because of more affordable rent alongside the improvement in the quality of the stores themselves.
As a result, two-thirds of the retailer’s pipeline of new stores are being purpose-built.
B&M chief executive Simon Arora tells Retail Week: “It’s a reflection of the fact that B&M today is worth £3.5bn – landlords can see how successful we are so they would like us in their retail park rather than someone else.
“Our stores get 10,000 visitors a week, so landlords can see that a retail space for us is a win-win, which allows us to drive a harder bargain.”
Growing international presence
While a handful of value retailers have mulled over or made tentative steps into international expansion, few have attacked it with the gusto of B&M.
Since B&M acquired German peer Jawoll in 2014, it has amassed 75 stores in the country, including the launch of a net 19 new outlets last year.
The retailer invested heavily in the German operation over the last year to support expansion.
“We expect the German business to go on the same journey as our UK operation because the shift to value or discount retail is a global phenomenon”
Simon Arora, B&M
As well as acquiring and converting nine outlets from German discount chain Knüller, the retailer commissioned “a significant extension” to Jawoll’s distribution centre in Soltau, Germany.
B&M also increased staff numbers in Germany from 1,200 to 1,500.
The retailer has highlighted the development of its international business as a key priority for the year ahead and plans to open at least 15 new stores in Germany in this financial year.
“We expect the German business to go on the same journey as our UK operation because the shift to value or discount retail is a global phenomenon,” says Arora.
However, Arora is not eyeing too many new pastures for international roll-out just yet.
“We will restrict ourselves to European low-risk markets that we fully understand,” he says.
Aggressive store opening programme
When brothers Simon and Bobby Arora acquired B&M in 2004, the value retailer had just 21 stores.
Thirteen years later the number has risen to 612 across the UK and Germany. The UK store footprint has grown 44% since the B&M IPO in 2014.
Arora is confident that there is plenty more headroom for B&M yet.
It is revving up for an assault on the South, where at the moment it is under-represented.
Arora says B&M’s push into the region to date has convinced him “that we have more scope for high-returning expansion than we had assumed”, and has upped its UK store target to “at least 950”.
The retailer’s expansion into the South will place it in direct competition with value rivals such as Poundland and Wilko, although Arora said it will prioritise retail park locations for the roll-out.
Changing with the seasons
B&M stores are often described as ‘Aladdin’s caves’ where shoppers can while away time browsing for products ranging from the practical to eccentric.
The retailer has exploited this appeal and changes the product range regularly to ensure shoppers can always find something new in-store.
“We have a situation where our shoppers typically visit at least once a fortnight, so you need some retail theatre or newness to show them to remain an interesting or fun retail experience”
Simon Arora, B&M
“We have a situation where our shoppers typically visit at least once a fortnight, so you need some retail theatre or newness to show them to remain an interesting or fun retail experience,” says Arora.
“We created our own events calendar of promotions that were not so much reducing prices as flexing the product range.”
Outside the typial promotions of toys around Christmas-time and garden furniture in the summer months, the retailer also runs a series of non-seasonal promotions in less obviously lucrative months throughout the year for selected product categories such as home cleaning and pet care items in order to drive revenue.
Word of mouth
Arora is famously frugal so far as marketing spend is concerned, preferring to let B&M’s reputation reach new shoppers via the recommendations of its existing customers.
However, the retailer changed its tune last year when it ran its first TV advertising campaign for Christmas.
“We came to the conclusion that as a business with 500 stores in the UK it was a little bit churlish not to test advertising,” says Arora.
“We certainly don’t see ourselves as needing TV advertising. We’ve found the regions where we didn’t do advertising also had their best-ever Christmas and Easter”
Simon Arora, B&M
Arora says the retailer is still in the “test phase” with traditional advertising, and is not yet convinced that it is delivering a sufficiently compelling return on investment
“We certainly don’t see ourselves as needing TV advertising. We’ve found the regions where we didn’t do advertising also had their best-ever Christmas and Easter,” says Arora.
If B&M can notch up four million returning customers without needing to plough investment into its marketing offer, perhaps it’s an expenditure the business could better spend elsewhere.
Arora says: “We know we are at our best when household budgets are under pressure and consumers are looking even harder at making savings.”
However, that does not tell the full story about the retailer’s resilience to the whims of consumer sentiment.
Because B&M’s USP is not linked to the single-price format traditionally favoured by rivals such as Poundland and Poundworld, it can run a broader range of products and, as a result, steal market share from fellow discounters, specialist and general merchandise retailers alike.
By offering a “wide but disciplined range” of best-selling products across its different categories, the value retailer is able to undercut the prices of many retailers as well as secure highly competitive prices from its suppliers.