B&M Bargains sets sights on European expansion

It has brought the world the Beatles, Cilla Black and two Premier League football teams. Now one of Liverpool's most lauded businessmen, Sir Terry Leahy, the former chief executive of Tesco, is taking one of the city's fastest-growing businesses, B&M Bargains, into Europe and perhaps beyond.

The passionate Everton fan has been appointed chairman and plans to build on the work of three brothers from Sale in Manchester.

Simon and Bobby Arora bought B&M Bargains, a discount retailer similar to the now-defunct Woolworths, in 2005. Their brother Robin, 27, joined them a few years later after studying business at Nottingham University.

The brothers, whose dad ran a cash and carry in Cheetham Hill, Manchester, have turned B&M into a 315-store chain with annual sales of more than £1bn.

B&M has opened roughly one store a week in the past year, helping the brothers increase profits by about 30% and turnover by more than 40%. This year it was named in the top 10 of Real Business's Hot 100 list of companies to watch.

"We know that as an underdog, we just have to work that bit harder and faster than our competitors. We work at B&M speed," said Simon Arora.

The brothers– who live next door to each other and take holidays together – are multimillionaires after selling a majority stake, believed to be 60%, to Clayton Dubilier & Rice (CD&R), a US private-equity firm in a deal thought to have valued the business at about £965m.

When the Aroras bought B&M from its former owner, Phildrew Ventures, it had only about 20 stores with sales of about £65m and was making a loss.

The retailer was struggling after it was launched with just £750 in 1976 by Malcolm Billington, in Blackpool. The initials originally stood for Billington & Mayman and later for Bargain Madness.

For Simon, 43, B&M, was a return to his heartland. The former Manchester grammar schoolboy left home to study law at Cambridge. He reportedly went on to work as an analyst for McKinsey, 3i and Barclays. Brother Bobby, now 40, went straight into the family cash and carry business after school.

In 1995 the two decided to combine their expertise to set up Orient Sourcing – a wholesale business sourcing cheap domestic goods from Asia – which supplied leading retail chains including Bhs, Primark and Argos with homewares. They sold the business to the Marks & Spencer supplier Lambert Howarth in 2000 for £30m, staying on the board for four years.

Eager to start their own enterprise again, the Aroras bought B&M. At the time the retailer mainly sold groceries. The Arora brothers introduced homewares, toys, toiletries and even pet goods and clothing. Now more than 90% of what they sell is non-food.

The retailer is able to offer knock-down prices by buying direct from suppliers in the Far East and snapping up bargains at manufacturers' clearance sales after other customers had over-ordered.

Simon Arora said: "I would like to think we are to general merchandise what Primark is to clothing." Three million customers go into the chain's stores each week, even though the company does not advertise. "It demonstrates that our discounted prices spread like wildfire simply by word of mouth," he said.

The Aroras have used the recession to their advantage to keep up the rapid pace of growth of their business by snapping up low-rent stores from failing businesses, including the DIY chain Focus, Woolworths and the defunct grocery chain Kwik Save in recent years. The brothers also bought the Glynn Webb and Opus Homewares chains, which were part-owned by family members, in 2006 and 2010 respectively.

B&M's bright orange and blue starburst can now be spotted in Scotland, Wales and Northern Ireland and as far south as Fareham in Hampshire. Still, the vast majority of its stores are north of an imaginary line from the Severn near Bristol to the Wash. The company is aiming for between 400 and 600 stores in the UK, and has plenty of opportunity to expand.

Neil Saunders, managing director of the retail consultancy Conlumino, believes B&M's plans make sense. "They know their customers and product and they just get on with it," he said.

In 2010, B&M moved its head office from Blackpool to Speke in Liverpool, close to the city's docks. It recently won planning permission for a £20m, 500,000 sq ft distribution centre there, which is expected to open in 2014.

That shows the scale of the Arora brothers' ambition. They brought in private-equity investment and the expertise of Leahy to help them open stores in at least three new countries in five years. "Our value-for-money general merchandise offer is simply not available in most European markets. We needed CD&R's expertise and investment to allow us to expand into those markets," said Simon.

In the UK, B&M faces competition from other fast-growing discount chains including Wilkinson, Poundstretcher, 99p Stores and Poundland, chaired by Leahy's former Tesco colleague Andrew Higginson.

The presence of two such strong retail bosses in the discount market suggests that is where they see growth at the expense of the supermarkets. Although, Tesco and Asda are applying competitive pressure in the way they price and discount their range of non-food items.

Saunders at Conlumino said: "B&M is not a pound shop and their proposition insulates them from the competition a bit as they have a wider selection of goods at various price points. Shoppers don't always know what they are going to get. It's about finding a bargain."

However, Saunders said it would be more tricky for B&M to step into Europe, where it would face new kinds of competition, different customer proclivities and potential logistical issues in getting the goods to stores.

"There is scope to do it – but it is quite complicated," he added.