Aftermarket or afterthought?
Last week I met with several companies in Melbourne, including Burson Group (ASX: BAP), Repco and Super Retail Group (ASX: SUL) to discuss their businesses and what they are presently doing to compete.
Below is an over-the-shoulder view of some of my notes on Burson Group.
- Overall sales up 12-13% for FY14
- Same store sales up 4% for FY14
- Like-for-like sales up 5% for January to June 2014
- Shrinkage still less than 1% of sales; and noted to be less than the industry average
- $340m in trade sales for FY13. Expecting to be the leader in trade sales due to growth in FY14
- Sales are divided 80/20 between trade and retail. 70% of sales are on account; 10% are trade customers paying up-front. 50% of total sales are for general service parts
- Expecting a 3% gross margin improvement over the next 3-5 years as a result of savings via a new distribution center (DC) being built in Queensland, and better prices from suppliers
- Scale benefits expected to cover the new DC cost in a reasonable time frame
- Inventory is managed with 1 brand in each quality segment (good, better and best)
- They hold more unique SKUs than any competitor (but less SKUs overall). This means they may miss some sales, but each store manager has the flexibility to order new inventory to cater to changing consumer demands
Notes on competitors
- Competition can be fiercer from independents that offer more specific catering to regular customers, and are rewarded with loyalty. Sales growth on a store level therefore depends on location. Example: a store in parts of Qld where there are lots of independents would be more difficult to grow than in other areas
- Customers have access to several pieces of software in which they can look up prices (such as include Navigator and Easy Parts). What’s interesting is that the vendors can use these systems to find out which tradies are looking up items from their own stores and whether they bought or not. This enables them to see which customers shop out of loyalty, and which shop on price
Both The Montgomery Fund and the Montgomery [Private] Fund own shares in Burson Group Limited.
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