B&M European Value Retail SA (LSE:BME) is strategically positioned to benefit from the recent challenges faced by Wilko, according to research from RBC Capital. The potential decline of discount retailer Wilko offers B&M a golden opportunity to expand its footprint and capture a larger market share, investors were told.
Wilko's woes
Wilko, previously known as Wilkinson, has been a staple on the high street since its inception in 1930. However, the company's recent entry into administration signals challenges. Traditional town centre shopping areas have been grappling with declining footfall and high rental charges, leading to the exit or downsizing of several retailers, including Debenhams and the Top Shop owner, Arcadia Group.
RBC's analysis suggests that Wilko's financial performance has been on a downward trajectory since 2018. Factors such as poor product availability, higher pricing, lack of innovation and challenges in establishing a profitable online presence have contributed to its struggles. The company's focus on bulkier product categories, such as DIY and garden, which are challenging to sell on the traditional British high street due to parking constraints, has further compounded its problems.
B&M's opportunity
RBC, in collaboration with its in-house data science team, RBC Elements, has identified significant opportunities for B&M arising from Wilko's market exit. Key findings include:
- Store proximity: Over 60% of Wilko's approximately 400 stores are within close proximity (<3km) to a B&M store. This geographical overlap provides B&M with a potential customer base, especially if Wilko stores close.
- Store acquisition: RBC's analysis indicates that 25 Wilko stores, which are more than 10km away from an existing B&M and not located on the High Street, could be of interest to B&M. Recent reports suggest that B&M might be eyeing 40-50 such stores.
- Sales overlap: B&M's product range has a significant overlap with Wilko's non-food and household offerings, accounting for 50-60% of its sales. This positions B&M to capture a significant portion of Wilko's customer base.
RBC has subsequently increased its long-term sales forecasts for B&M by 1% annually and raised its price target from 615p to 650p. The bank estimates that B&M could capture 10% of the sales overlap with Wilko over time, which would elevate its long-term sales compound annual growth rate (CAGR) from 5% to 6%.
And finally...
B&M's potential to capitalise on Wilko's woes underscores its strategic agility in the retail market. With a robust business model and a keen eye for opportunities, B&M is well-positioned to navigate the evolving retail landscape and deliver value to its stakeholders. As the retail sector continues to witness shifts, companies like B&M that can adapt and seize emerging opportunities will likely lead the pack.