The demise of U.K. department-store chain BHS looks set to benefit few in the retail industry. However, one set of shopkeepers may be able to pick up some choice leavings: German discount supermarkets Aldi and Lidl.
And that's bad news for Britain's big grocers.
Up to 100 of BHS's 164 stores have planning permission to sell food. Indeed, rolling out food divisions was a big part of the strategy when the chain was owned by Philip Green, and that continued when he sold it last year to Retail Acquisitions, led by Dominic Chappell.
That could make the stores attractive targets for food retailers. But few of the major players -- Tesco, Sainsbury, Morrison and Asda -- are expanding at the moment, after the space binge of the past decade.
Except, of course, Aldi and Lidl. Aldi has pledged to increase its number of stores from about 600 to 1,000 by 2022. Lidl is also targeting increasing its number of stores from 630 to up to 1,500, although it has not put a timeframe on when it could reach this goal.
BHS's stores aren't an obvious fit for the discounters. The locations average about 25,000 square feet, so they could feel a bit big, since discounters' stores are usually about 10,000 square feet.
While there may be some that fit the bill, potentially some could be split up into smaller units, and that would significantly increase the number of outlets that fitted the discounters' needs.
There's also an issue of design. The typical discounter is a smaller store with a parking lot attached. In contrast, many of BHS's stores are on main shopping streets with no parking.
Of the two, Aldi looks the most likely to be a good fit for the BHS sites. It's already been experimenting with stores that deviate from the typical format, such as with a convenience store in north London and locations in town centers such as Brighton and Manchester.
Aldi won't comment on its plans, but given its aggressive expansion, any potential new store locations are likely to be examined. Lidl is more wedded to the typical discount store format, but says it might be interested in sites if they fit its needs.
Any development that gives the discounters more firepower is a worrying development for Britain's big four supermarkets, as they've already handed over a good deal of market share to the German shop chains. Still, that tide may have started to turn: Big four grocery sales volumes were flat in the 4 weeks to May 21, the best result since September, according to consumer research group Nielsen.
Same store sales at the discounters may be slowing, but the store opening plans means that their overall sales will continue to rise. That gives them more buying power with suppliers which they can continue to feed into low prices.
The discounters aren't the only ones that are threatening to depress prices. Shares in Tesco, Sainsbury and Morrison fell on Monday after comments last week from Dave Cheesewright, head of Walmart's international arm, that the U.S. giant and owner of Asda was "very disappointed" with the unit's performance in the U.K., and that it would focus on cutting prices.
Tesco is trading on a forward price-to-earnings ratio of about 22 times, with Morrison on 18. Sainsbury is at a deserved discount to both, given concerns about its integration of Argos.
The equivalent ratio for the FTSE 100 share index is 16.8 times. A resurgent Asda, plus a kickstart to Aldi and Lidl from the BHS store estate, suggests the ratings of Tesco and Morrison have got ahead of themselves.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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