When B&M published its latest market update this month, its team might have expected a positive market reaction. After all, sales were up and the business felt confident enough to oversee a £151m dividend. Despite this, investors reacted negatively.
B&M has achieved considerable success in recent years off the back of a low-tech strategy that bucks wider market trends towards e-commerce, automation and big data. These approaches, however, are being put under pressure by growing competition in the value retail market and broader economic trends.
So what are the weaknesses investors perceive in B&M’s strategy, and how can the retailer address these weaknesses to ensure January doesn’t set the tone for the rest of 2025?
Automation vs labour costs
One area where B&M has, through no fault of its own, found itself exposed in recent months is on the question of automation.
While many have been swept along by the efficiency gains promised by AI and automation, B&M has opted for a more traditional approach that still relies heavily on human labour in warehouses and stores.
Following the government’s autumn statement, this has left the retailer needing to factor in both increased National Insurance contributions and a higher minimum wage. However, the lack of significant investment in automation – until now, at least – leaves it with lower CAPX relative to some of its competition, meaning many of these costs can be absorbed while the retailer remains competitive on prices.
E-commerce
Another area where B&M has taken the road less travelled is in eschewing online sales. In the age of Amazon and the internet of things, this feels like a radical move but, so far, it has served B&M well. The strategy has been to get customers through the doors with the intention of spending £10, and wowing them with deals that lead them to spend substantially more.
As ‘digital natives’ become an ever more important market segment, however, investors are questioning how sustainable this offline-only strategy is. It’s a strategy that could also put potential geographic limitations on B&M’s potential store network. After all, in high street settings and away from car parking, it’s unlikely customers will buy larger, heavier items in-store and carry them around, no matter how attractive the price.
Pressure is building then to embrace e-commerce, as indicated by investor reaction to B&M’s latest results.
Big data
B&M has also resisted the wider direction of the market on pricing. While other retailers have rolled out loyalty programs to solidify customer relationships and generate big data insights, B&M has instead stuck to competing solely on in-store prices.
The sentiment expressed by investors last week would seem to suggest this too is looking increasingly outdated, especially in an era where ‘data is the new oil’.
These factors, coupled with growing consumer demand for value retail and growing competition in this sector – including from major supermarkets who are showing an increasing interest in value retail – are weighing on sentiment for B&M in 2025. Opening new stores and boosting like-for-like sales will be key to improving its fortunes over the coming year, as might be adjusting strategy and embracing the possibilities of technology, from automation to big data.
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