B&M Group - Business Model Pillars

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

At B&M, could we get into what your day-to-day responsibilities involved?

An important point was, in the journey of B&M I first met Simon, as I talked about, in 2010. I joined the business in 2011 and it was a very interesting stage. It had bought the business in 2005 with, as we know, only 22 stores. When I joined them, they had reached just over 100 stores with the acquisition of Woolworths, in 2008, and a number of smaller businesses that they had taken over. Literally, the principles of the business that we will dig into, were still there; they were probably already cemented. But as regards to my role, they had bought 22 shops, they had acquired 50 plus Woolworths stores, a few other businesses and it’s more that the day-to-day was bringing a consistency.

Whether you were shopping in an old, historic Woolworths store, up in Scotland or a converted warehouse type store that they had taken over in the Midlands, what did B&M stand for? It was a really interesting time because discount – particularly GM discount – wasn’t on trend; it was growing. I’ve always said that when you buy 58 Woolworths stores, you want to trade them straightaway. You haven’t got time to gold plate and put new floors down and so on. Every shop was at a different stage. Ultimately, the overarching priority was to get some consistency, so the customer could understand what B&M stood for.

That was the very top level for what our initial day job was and then it was to put processes and procedures in place. When we talked, initially, they always had plans to grow. Not to the extent that they are at now, because who could have written that story. Literally, when I first spoke to Simon it was more of, can we get to a billion-pound turnover and can we get to 400 shops? That was one headache; the 100 plus stores that I’ve just inherited need to have some consistency. Then on top of that, we’re planning to open – in those days – 50 shops a year. It’s separate fields. One, we’ve got the day to day of the current estate and fixing that, whilst opening 40 shops a year. For those 40 shops, the secret is, how do you open and how do you create a team to open that level of stores whilst not affecting the day to day? That’s a real challenge for lots of retail businesses. The interesting bit for a retailer – opening new shops – is all very exciting and it’s all new. But actually, the important part is, what happens after 12 weeks because it’s not a new store anymore and it’s part of the core estate.

It was very much about consistency and operational standards. Something we will probably touch on a lot is, whilst doing that, we’ve got to keep the operations simple. It’s to create a simple, day to day operation, whilst expanding at the rate that we continue to expand at. That was the overarching day job.

What did you really focus on when managing the store level economics, at that time?

Pulling on some experience from other retailers that I’ve worked with it was, again, the simplicity; we don’t need to gold plate the operations. How do we stay legal? What principles do we want our store managers to adapt to? Available for the customer; clean for the customer; and ticketed. Pricing is quite a key driver for a B&M customer. Additionally, a consistent and efficient model. Let’s not do tasks that the customer doesn’t benefit from. Let’s keep that as simple as possible. Let’s not have a structure for vanity. If you wind the clock forward in businesses such as Aldi and Lidl, you see a lean team, focused on the customer, just on that delivery that’s coming in today. Therefore, you can delight the customers when they come through the door. When you look at the labor model now as compared to the labor model back in 2010, 2011, there is not a lot that’s changed. Turnover has increased; store numbers have increased. But actually, the operational cost of set up and day to day, have stayed very, very consistent. That’s to the credit of the current management team. With success, things change but, actually, the model is pretty similar to what it was way back in 2010, 2011.

It’s really interesting to look at what has changed versus what hasn’t. What would you say were the biggest differences that you noticed in the culture, Simon’s vision for the business and the way Simon operated in the business? I appreciate at the time that you came in, we were dealing with a work in progress and a much younger business than we have now. But what struck you about what was really particular about this business, relative to other retailers you had experience of?

It’s a really good question. I had been in retail with a number of businesses so, first and foremost, when I first met up with Simon, I’ve got be honest with you, I really didn’t know that much about B&M. Simon had continued to keep the business under the radar as much as they could do, so there wasn’t much out there. These are the days when Home Bargains were around and probably the best discount retailer in the marketplace, at the time but there were also the likes of 99p Store, Poundstretcher, Poundland, Poundworld and B&M. What struck me at that time was that they were the worst customer experience in the marketplace.

For me, my initial thought was, I can only move this one way. Actually, there were lots of discount retail players, way back then. It wasn’t on trend as much as it is now. But there was a marketplace and a strong marketplace for discounters. If you look back at the recession of 2008, a lot of retailers were doing quite well at that period of time. What struck me was that, actually, this is a simple model but it needed to be joined up. The distribution network which is very simplistic as regards to how products come in from the Far East, needed to be aligned with the retail operation which needed to be simplified, in order to delight the customer; it was the view that we could join that up. Also, because there was no history, because it was a relatively new business – they had bought 22 shops and had been around since the early 1970s, but it was still new – it hadn’t had processes and procedures deep rooted. You didn’t have to unpick anything. Basically, it was having to create what you wanted and that was a refreshing approach.

Back then, I met the Aroras and understood, by admission, that they weren’t retailers. They had bought a retail business but they’re not retailers. What they wanted was to keep it as simple as possible. It keeps coming back to the fact that I’ve got someone who has bought a business, he wants to keep it as simple as possible and he doesn’t want to copy other retail businesses.

One of the first times I met him he said, don’t think you’re going to do that and don’t think we’re going to do this just because those businesses do it. We want to do it the B&M way. That, actually, was really refreshing. To summarize, we’re not very good, we’re in a market that’s growing and there’s lots of players out there that are better than us, but weren’t world class and we can do it our way. That was the real appeal in the early stages. What does a customer really want? A lot of retailers chase the customer; that’s a phrase I use a lot. But what does the customer truly want? Do they really want a terrazzo floor that costs a quarter of a million pounds that would outlive you and I? Or actually, let’s put a vinyl floor down that might last eight years and cost £20,000. Does it actually matter for the customer?

Wind the clock forward, what matters to the customer is, yes, they need clean environments but also good quality products, at great prices. Whether it’s general merchandise or, as I alluded to before, Aldi or Lidl, the customers will vote with their feet. But they will also vote with their feet if they walk into a dark, dirty, disorganized environment. Maybe on top of my priority list, initially, was that I wanted a customer to walk into a B&M, at whatever time of the week, in whatever store and know what they are getting and that the product was available. Yes, there are new products that are coming in and one of the appeals is that there are 100 new products and that’s still the same as it was 10 years ago. But actually, I’m coming in for those Duracell batteries and I know where they’re going to be. I’m coming in for those cleaning products and I know where they’re going to be. I suppose, it was unpeeling all the things I had learnt over the years to say, actually, what is important and what is not.

A lot of retailers move products around for the seasons but, for the customer, is that actually important? I’ve got an anecdotal story to bring that to life. I remember showing one of my old trading directors around a B&M, after I had been there for 12 months. I was showing him around and I was quite proud of what we’d achieved so far. He was walking around and he said, it’s the summer and you’re still leading in, on the first aisle, with soup. You shouldn’t be leading in with soup; it should be salad products. At that moment it was like, actually, we’ve got this right. 52 weeks of the year, our customers know where that product is. You can flex the space, to two, three or four bays. But actually, why move it round because every other retail business moves things around in the seasons?

Then you go back to the model of, if you are moving things around for the seasons because other retailers do it, there’s a cost. Not moving it around 52 weeks of the year, your costs can stay pretty constant. Those labor costs, in a B&M model, can then be utilized for the basics and then, secondly, for the two key seasons; gardening and Christmas. Keep gardening and Christmas in the same space in the store but up it. Actually, in a B&M, the only two categories that change, 52 weeks of the year, are those two, where you’ve got other retailers moving things around all the time. It confuses the customer. Getting that confidence where they can say, I’m going into the B&M, I know it’s going to be there, I know where it’s going to be and, more importantly, I know what price it’s going to be and it’s going to be very competitive.

It was interesting times and, again, it keeps coming back to that idea of what does a customer truly, truly need and let’s not follow what other people do.

You’ve had experience with a number of other interesting retailers since leaving B&M. What have operators of those businesses that you’ve worked with, struggled the most to understand about the way B&M is operated and what really works about that model?

Again, a great question because that’s probably one of the biggest frustrations, sitting around the board room of another business that has got the history and experience around the table, but may not be as successful with performance and so on. It’s trying to get those established businesses, in set ways, to do something different and to break the mold. Businesses get into habits; we’ve always done it that way and it works. Can we do it a more efficient way and it can either work the same way or be more effective? Stop doing things for effect and stop doing things because we think the customer wants it that way.

It can be about what the store looks like. In a lot of cases, it is selling products for vanity rather than for profit and also the size of some management team structures. I used to call it stuff; what stuff are you actually doing? What task are you actually doing? Is it helping the customer and putting pound notes in the till? For a lot of businesses that I have worked with and also advised, they are stuck on this drug of, we think we need to this; we have to do this. Legally, we have to do this. Actually, when you look at it, to be legal, what do you actually have to do? That is the hardest bit for businesses.