How B&M became a retail powerhouse as rival Wilko collapses

The collapse of Wilko has left rival B&M as perhaps the leader in bargain retailing on the high street, with analysts touting the group to maintain its rapid growth trajectory.

It was revealed on Monday that last-ditch talks to resuce Wilko had failed, as auditors were unable to agree terms with the owner of HMV to save jobs at 200 stores.

But B&M has already swooped to snap up 51 of Wilko’s 400 store estate in a £13million deal, as it capitalises on its rival collapse. 

This is Money examines how B&M became a UK retail powerhouse, why it would want to buy a large slab of collapsed Wilko’s stores, and the group’s growth plans.

B&M stepped in this week to snap a number of Wilko stores as it capitalised on its rival collaps

What does B&M do? 

B&M sells everything from food and pet supplies to kitchenware and electricals.

It was formed in 1978 by Malcolm Billington and Brian Mayman with the company originally known by the names of its founders – Billington and Mayman.

In 2004, it was sold to the Arora brothers, Simon, Bobby and Robin. It then became B&M.

The brothers, whose father ran a cash and carry in Manchester, have since turned B&M into a fast-growing chain. 

A key part of B&M’s success lies in the retailer’s ability to source its huge range of merchandise directly from its own Asia-based buying operation, which it gives it an edge on design and value. 

Former Tesco chief executive, Sir Terry Leahy joined the business in 2012 before departing in 2017, with the company at the time experiencing soaring sales and profits thanks partly to new store openings and the acquisition of frozen food retailer Heron Foods.

The bargain retailer employs 30,000 people across its 937 stores and also owns Jawoll in Germany.

Having been listed on the London Stock Exchange for just under a decade, B&M shares have become a staple of many investors’ portfolios.  

Richard Hunter, head of markets at Interactive Investor, said: ‘The shares listed on the market in June 2014 at a price of 270p. 

‘The stock did not take long to capture the imagination of investors, such that B&M was promoted to the FTSE 100 in September 2020, where it remains today. 

‘The shares kicked on after this promotion and peaked at around 640p in December 2021.

‘Although the shares subsequently retreated from those heady highs, currently standing at 556p, there has nonetheless been an increase of 51 per cent in the price over the last year.

‘The recent boom to its fortunes is largely as a result of its value offering to consumers, which has come into sharp focus given the general pressure on customer wallets and the cost of living crisis being experienced by some.’

Why did Wilko collapse?  

In August, Wilko announced that it was entering administration, putting 12,000 jobs and 400 stores at risk.

Mark Jackson, chief executive of Wilko, said in an open letter last month: ‘We left no stone unturned when it came to preserving this incredible business but must concede that with regret, we’ve no choice but to take the difficult decision to enter into administration.’ 

Signs of Wilko’s woes emerged in 2017 when the company commenced a redundancy consultation affecting 4,000 jobs. 

Wilko posted a £65million loss for that year and continued to disappoint thereafter.

The company made a series of moves to improve its financial position, including a strategic partnership with DHL, further job cuts and a £40million funding lifeline secured from Hilco UK earlier this year, which was later extended.

The Mail on Sunday exclusively reveled last month that Wilko paid out a total of £77 million to the owners and former shareholders of the stricken retail chain in the decade before its collapse. 

This included a £3million dividend last year, which was paid despite Wilko racking up losses of £39million. A total of £3.2million was doled out in 2018 when Wilko slid to a £65million loss.

In August, Wilko announced that it was entering administration, putting 12,000 jobs and 400 stores at risk

Retail experts have pinned the blame for Wilko’s eventual collapse on the cost of living crisis and economic uncertainty, as well as its failure to recover from the impact of the pandemic. 

But B&M sales grew by 24 per cent between April and December 2020, while other ‘non-food’ bargain outfits have also performed well. 

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown described B&M snapping up some Wilko stores as ‘symbolic of its meteoric rise, as it benefits from the mis-steps of its rival’.

She added: ‘B&M’s position on retail parks rather than predominantly high streets helped it during the pandemic when customers favoured out-of-town locations. 

‘It’s likely that B&M picked up new customers during this time who permanently switched from Wilko. 

‘B&M also had a good handle on its proposition and pricing techniques over the last couple of years which has helped it win and retain fans.’

What are B&M’s expansion plans? 

In a trading update in May, B&M chief executive Alejandro Russo, outlined his vision for the company, which will see the retailer significantly grow its store estate.

He said: ‘Previously we have made it clear that the 950 target for store numbers is conservative but even so, it represents c.35 per cent more stores than today, and with newer stores being on average bigger than existing stores and having higher total sales, the sales growth should be even greater than this 35 per cent. 

‘We will accelerate our new store openings back towards 40 stores per annum, with c.30 expected in FY24, but focus will always remain on new stores generating a leading return on investment. 

‘We will not compromise on our investment targets, and we will not open unprofitable stores just to meet a store opening target. Sustainable profitable growth is at the core of our business.’

The company also plans on opening 20 Heron stores in the UK, in addition to 10 more shops in Frances. 

Interactive Investor’s Hunter said: ‘Its most recent acquisition of 51 Wilko stores is also a show of intent. 

‘As has been so many times in the past in the retail sector, the survival of the fittest prevails. 

‘The companies which remain not only have a smaller pool of competition as others go to the wall, but also may get an opportunity to snap up all or part of rival operations at bargain prices, such as was the case with Wilko.

‘The market consensus of the shares as a strong hold suggests that some investors believe the price to be up with events for now.’

HL’s Lund-Yates cautioned that ‘there are still broader challenges that B&M needs to contend with’, particularly as consumers continue to feel the pinch. 

She said: ‘The cost-of-living crisis is pushing people towards discount options, but overall spending is due a dip because of very high interest rates and the squeeze on incomes. 

‘The lack of online strength is also a weaker point, and could see it lose market share in the long run.’ 

This post first appeared on Dailymail.co.uk