LONDON: If recent reports that Dunnes Stores is planning a major UK expansion translate into reality, Margaret Heffernan will need to draw on her legendary reserves of gumption to pull off the move. The cut-throat UK retail scene is no place for the faint-hearted, although that might actually suit Dunnes’ Iron Lady.
Retail property agents in Britain are speculating that Dunnes Stores is planning to open up to 40 more stores there, perhaps by acquiring a job lot of properties to be divested by one of the big UK retailers. Marks & Spencer is offloading at least nine stores, while BHS is rumoured to want to jettison up to 50.
If Dunnes does take the plunge, it would represent one of the biggest strategic pivots in the company’s 70-year history.
Some British retail analysts are unconvinced Ireland’s biggest indigenous retailer can make an impact across the sea.
“The UK market is very competitive already and there is no obvious opportunity for a new entrant, particularly when it is not clear what Dunnes’ unique selling point in the UK is,” said James Tracey, an analyst with Redburn.
Others, however, argue there is a chance of success if Dunnes almost literally sticks to the knitting. Sam Hart, an analyst with Charles Stanley in London, thinks a Dunnes expansion could work if the chain focuses solely on clothes and homewares.
Proposition “It is very unlikely Dunnes would make headway in grocery . . . But I think there is still room for new players in [
the textiles] market if they have a strong customer proposition,” said Hart.
How might Dunnes tackle a UK expansion, and what would it be letting itself in for were it to try?
Even for a €3.5 billion a year retailing heavyweight, the expansion speculated would be a massive decision for Dunnes. Depending on the structure of any property deal, the company would probably have to invest a minimum of £250 million (€357 million).
The group has 23 stores in the North, five in Scotland and six in northern England. An extra 40 stores – presumably most would be in Britain – would more than double its UK business.
The company has 155 stores in total, so the mooted expansion would increase its estate by more than a quarter at a stroke. Even for the doughty Heffernan, chairwoman and matriarch of the business, it would be a lot to chew at once.
The performance of its existing UK business has been patchy in recent years. Dunnes Stores (Bangor), which includes its Northern Ireland stores, had sales of £140 million in the year to the end of February 2014, down 11 per cent.
Dunnes Stores (UK), a British-registered company, also saw its sales in the same period fall by more than 10 per cent, to €24.4 million.
Most of its stores in Northern Ireland, and all of its British stores, eschew grocery sales and focus instead on textiles and homewares.
Analysts and seasoned observers of UK retail appear united on one thing: it would be commercial suicide for Dunnes to wade into the British grocery market. The sector is a war zone, with Aldi and Lidl lobbing commercial grenades at the indigenous incumbents, much like they’re doing in Ireland.
