B&M chief executive Simon Arora will step down next year, having transformed the value operator into a UK retail powerhouse over the past two decades. His time at the helm offers lessons aplenty for his contemporaries, as Retail Week explores.  

B&M Stafford

B&M has expanded from 20 stores to 1,100 during Arora’s 17-year tenure

When Simon Arora and his brother Bobby acquired B&M in 2005, the retailer was a loss-making outfit with approximately 20 stores.

Cut to 2022 and the FTSE 100 general merchandise business operates 1,100 stores across the UK and France, is a mainstay on City analysts’ buy lists and has eclipsed the market cap of heritage retailers including Marks & Spencer.

Simon Arora has led B&M throughout its meteoric 17-year rise and more than made good on his early ambition to do in general merchandise what Primark did in fashion, and Aldi and Lidl did in grocery.

But how did he do it – and what can retail rivals learn from his success? 

Smart sourcing

Simon and Bobby actually made their start in sourcing before acquiring B&M in 2005, and this expertise has been brought to bear on the retailer’s operating model in the 17 years since.

By focusing on buying directly from suppliers in the Middle and Far East, often at clearance prices when other customers have over-ordered, B&M is able to offer highly competitive prices to customers across all of its ranges in store. The retailer has also focused on a light SKU count of ‘best-seller’ products and a regular turnover of the ranges available.

This strategy offers two key benefits. Firstly, it ensures newness in store and encourages shoppers to visit regularly. Secondly, it allows the retailer to maintain margin and strong sell-through of the product lines that do make it to its shelves. 

Know when to hold, know when to fold

Arora has had a knack for canny diversification and expansion during his tenure as chief executive of B&M. The general merchandise retailer was quick to recognise the opportunity in expanding its value-led offer into grocery, acquiring Heron Foods in a £152m deal in 2017 – more than three years before rival Poundland bought Fultons Foods in 2020.

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Arora has made B&M a more resilient and diverse retail business

Heron has strong value credentials and a loyal customer base while having the advantage of operating in towns without a competing convenience offer from the likes of Tesco or Sainsbury’s.

In B&M’s third-quarter results in January, this division of the business delivered like-for-like growth ahead of pre-pandemic levels. 

During the same period, B&M’s French division delivered a 30% jump in revenue. B&M acquired French discount chain Babou in 2018 for €91.2m (£80.6m) and has converted the majority of its stores to the B&M fascia and operating model – a move that has delivered strong results for the retailer’s balance sheet.

But Arora has also been unsentimental about parting ways with divisions that have not borne fruit. In 2020 the retailer sold its underperforming German business Jawoll, which it had acquired just six years previously. 

By recognising early opportunities in the UK and overseas, and knowing when to walk away from those that are not delivering results, Arora has made B&M a more resilient and diverse retail business than it was when he arrived.

Aladdin’s Cave appeal

B&M is at present one of the few major UK retailers not trading online – a limited trial is planned for this year – so its stores need to be compelling places to visit.

Arora has achieved that by creating an Aladdin’s Cave appeal or, as the retailer terms it: “A treasure hunt browsing experience, which is something customers enjoy and often leads to impulse purchases.”

That, in turn, helps to drive average transaction values and sales densities in its shops. 

From Dulux paint to Diet Coke via DIY goods and dishwasher tablets, customers can find a vast range of household, gardening, health and beauty and grocery products. Approximately 20% of space in its stores is devoted to seasonal lines and 100 new lines are added every week to ensure fresh appeal constantly.

That degree of variety has enabled B&M to widen its appeal, bringing in middle-income customers who it says “may not need a bargain, but certainly enjoy a bargain” and eating into the share of wallet gobbled up by competitors ranging from Superdrug to Sainsbury’s. 

Working well with private equity

Private-equity ownership of retailers frequently gets a bad rap, but Arora showed that the right partnerships can bring great success.

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B&M describes its stores as “a treasure hunt browsing experience”

Clayton, Dubilier & Rice (CD&R), which recently acquired Morrisons, took a big stake in B&M in 2013, recognising that “the Aroras are exceptional entrepreneurs who have done a great job building a business that is trusted and supported by loyal customers”.

Former Tesco chief executive Sir Terry Leahy joined B&M as chair and remained in that post until 2018, by which time B&M had successfully floated.

CD&R made more than £1bn out of its investment, while B&M has continued to thrive and became a constituent of the FTSE 100 in 2020

The partnership showed that the right deals, backed up by the right strategic focus, can work for all parties.

Smart property strategy

Arora and B&M have always pursued a savvy property approach as the business has expanded, churning its estate effectively.

Over the years, B&M has moved out of older, smaller units, often replacing them with purpose-built premises.

In its last financial year, for instance, five of B&M’s 43 openings were relocated stores “where there was an opportunity to open a larger, more modern unit capable of providing a better shopping experience for customers and generating a significantly higher quantum of profit than the closed store”.

The retailer has taken advantage of property opportunities to drive growth in particular categories. 

For instance, analyst Nick Bubb highlights the “smart move” B&M made to acquire former Homebase stores with attached garden centres, which helped it grow its presence in the gardens market.

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