The collapse of Blockbuster and Jessops may have saddened film and photo enthusiasts and led to repeated warnings that the country's high streets are on their last legs. Yet it the retailers' troubles have proved beneficial for supermarket giant WM Morrison (MRW), which has scooped up the leasehold of 49 Blockbuster stores and seven Jessops shops, as it begins an accelerated expansion of its new convenience estate, Morrison M Local.
The Blockbuster purchase, in particular, will give Morrison quick access to a number of high street and neighbourhood locations, notably in the south-east, and it aims to have the stores trading by the end of the summer. While Morrison has not disclosed the locations of the acquired Blockbuster and Jessops stores, many are likely to be in London, as the company has previously said convenience outlets are key to increasing its presence in the capital. Morrison aims to open at least 70 convenience stores across the country this year, with expansion in London supported by a 100,000 square foot distribution centre in the West of the capital, set to open later this month.
But the good news doesn't end here. The supermarket is also one of the few food retailers benefiting from the horse meat scandal that has proved a PR disaster for so many of its biggest competitors, including Asda, Tesco and Waitrose. This is because the Morrison business structure is largely vertically integrated, which means it controls its entire meat supply chain, from field to fork. The supermarket owns some of its own farms and abattoirs and employs in-store butchers, who have reported an 18 per cent rise in sales at fresh meat counters since the horse meat story broke.
It's possible that shoppers, at least in the short term, will look for quality assurance marks on their meat and will turn to Morrison instead of its rivals. The purchase of former Jessops and Blockbuster stores, on terms that are likely to have been favourable for the supermarket, is also a welcome development. But this recent spate of good news does not detract from the fact that the food retail industry is suffering due to higher costs on the one hand, and cash-strapped shoppers on the other. Morrison had a tough Christmas, which followed an equally disappointing first half, and while self-help initiatives are making progress, the benefits of these will take time to materialise. Earnings are expected to remain flat or fall slightly in the next couple of years, too. At 262p, the shares still rate a hold. Last IC view: Hold, 257p, 7 Jan 2013