Bargain hunt with B&M

B&M sells a range of discounted products, including groceries and kitchen items. It operates 656 B&M stores in the UK, in and out of towns, and in retail parks. These provided 82 per cent of revenues over its past financial year. It hopes to grow this to at least 950 core stores in the long term, having added 36 last year and with about 30 planned openings this year. It operates a smaller convenience store division named Heron Foods, and an even smaller French retailer, Babou. Online sales are not an important part of its growth strategy, although customers can arrange collections online, which helps shift bulkier items such as furniture. While the lack of a comprehensive online sales channel may seem puzzling, this would necessitate delivery charges, eroding bargains for shoppers. 

The B&M proposition is based on directly sourcing from suppliers to keep prices low. The retailer focuses on bestsellers and regularly refreshes its stock in order to incentivise impulse buying and increase basket sizes. On average it adds 100 new products per week. 

An increasing number of shoppers were bargain hunting before the pandemic. A September 2019 survey by consultancy PDIQ found that48 per cent of shoppers were using discount shops more regularly, while only 15 per cent thought there was little price difference between discounters and supermarkets. 

B&M’s low prices, presence beyond high streets and product variety served it well in the spring. Profit upgrades came after it served 6.6m customers in the week before lockdown, compared with a weekly average of 4.8m last year, although much of these sales will have been pulled forward. But B&M’s customers are loyal – 82 per cent shopped regularly or occasionally with B&M last year – and the retailer will hope to retain much of its new base through its continued roll-out of products. 

This surge did contribute to driving B&M’s inventory levels down 12 per cent in its year to 28 March, despite a 16 per cent increase in sales. Gardening products sold out during lockdown, while stock levels in other areas are also lower than normal.

As well as increased demand during the pandemic, the retailer’s approach to stocking helps explain the extent of the drop-off in stock levels and arguably makes the issue less of a concern. B&M tries to keep the turnaround of non-seasonal stock below 14 weeks of expected sales, and decides approximately four weeks after trading whether to repeat the order, change product design or end the product line. It also experienced delays to stock arriving from China owing to the coronavirus. So a few shelves were empty after demand rocketed, but this didn’t hamper profitability.

Net debt of £1.6bn includes £1.3bn of lease liabilities, reflecting the large, rented store estate. It refinanced £400m of debt in July, lowering interest payments and extending maturities by three years to 2025. The £150m sale and leaseback of its Bedford distribution facility in March prompted a 15p special dividend. The disposal of its lossmaking German business in the same month, which has involved B&M sacrificing at least €36m (£32m) of inter-company loans, brings a disappointing foray to a conclusion and will free up resources to refine its nascent French outfit.