Bathstore’s performance is intrinsically linked to the housing market and it must look beyond planned cost measures to achieve the performance it is accustomed to.
Bathstore is well diversified within its sector, having both a service and product offer, as well as supplying kitchens and bedrooms – but the company is reliant on the housing market more than ever.
It needs to look overseas while making its offer more accessible to first-time buyers to maintain growth in an uncertain climate.
Bathstore has staged something of a recovery since Gary Favell took over as chief executive in 2012, driven by investment in its product offer, store refurbishments and a new website.
“Retailers in the sector have taken a battering from the economic climate, particularly uncertainty surrounding Brexit”
While its 2016/17 results will not be revealed until mid-2018, the retailer stated that it faced a “difficult” start to the year.
If tile specialist Topps Tiles is anything to go by – with its like-for-likes down by a hefty 4.7% in the third quarter of 2016/17 – it will be highly challenging to achieve the double-digit sales growth Bathstore has been used to since its buyout by Endless in 2012.
Retailers in the sector have taken a battering from the economic climate, particularly uncertainty surrounding Brexit, which has impacted consumer confidence.
This follows housing transactions being hit by stamp duty changes that came into effect in April 2016.
Against a backdrop of falling sales in a challenging market, Bathstore and Topps Tiles are now looking to cut costs to protect profitability.
Improved end-to-end proposition
While Bathstore has been back in the black since 2014/15, margins have remained at low levels.
Further growth has been targeted by the development of an end-to-end proposition through the introduction of fitting services, with service revenue up more than 30% in 2015/16.
But the extension of its offer into kitchens and bedrooms from 2017 means the retailer’s reliance on the housing market is now deeper than ever.
However, the retailer has sought to grow internationally, which may mitigate its vulnerability to the UK housing market.
“Beyond extending its reach into new markets, there’s opportunity to improve accessibility closer-to-home”
Its first move overseas in 2016 saw Bathstore open a franchise store in Doha, Qatar, with significant scope for expansion across the region perceived by management.
Beyond extending its reach into new markets, there’s opportunity to improve accessibility closer-to-home.
While Bathstore has lowered its entry prices over the years, Favell does not want the perception of a budget offering, and unlike during the last major dip in the sector – the 2008 financial crisis – lenders are available and credit is more affordable.
Therefore, Bathstore could bolster its end-to-end proposition further by providing greater levels of flexible credit options, in particular, to target first-time homeowners.
It offers a ‘Buy now, pay later’ option on purchases over £1,000 – which is fine for kitchens where fixtures come at a higher price, but less appropriate for other areas like bathroom fixtures.
“Perhaps more critical is that the cost of credit at B&Q – the representative APR – is substantially lower than Bathstore’s”
It should seek to lower this threshold. Dominant competitor B&Q recognises this: the DIY giant offers fixed-term, interest-free credit on such purchases over £500.
Perhaps more critical is that the cost of credit at B&Q – the representative APR – is substantially lower than Bathstore’s.
This could ultimately prove the deal clincher to bring forward home refurbishment projects for savvy first-time buyers who have scrimped and saved to enable ownership.
While a wider ‘generation rent’ issue is at play for millennials, ultimately they aspire to be homeowners but are waiting longer to do so.
Therefore, measures by retailers that make complementary costs of ownership more affordable are likely to be met with open arms.