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Leroy Merlin Aims to Diversify the Usual Megastore Format Through Investment in So-Called Express Stores
Leroy Merlin, a large company characterized by its giant construction material stores located on highways and expressways, now intends to enter the essence of neighborhoods with much smaller sales points.
The company plans to invest approximately R$ 1 billion in 150 stores aimed at quick purchases by 2024. This investment will be directed toward building Express stores in the capitals of the states where Leroy Merlin’s megastores already operate, such as São Paulo, Rio de Janeiro, Minas Gerais, Rio Grande do Sul, Paraná, and Santa Catarina.
According to Renato Coltro – director of Development, Expansion, and Institutional Relations at the company – having 150 Express stores by 2024 is a viable plan; however, in Brazil, many more stores of this model can be accommodated.
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In the Express store format, the size of the point varies between 600 and 1,000 square meters, and an average of 6,000 items are sold. Homecenter megastores, on the other hand, are much larger, with sales areas varying between 7,000 and 18,000 square meters and offering up to 70,000 products.
Leroy Merlin’s main competitor, the company Telhanorte, has been directing investments to neighborhood stores since August 2019. Currently, the group already has eight quick service points under its banner in the city of São Paulo.
Leroy Merlin, for its part, started investments in the new model at the end of 2020 in the capital of São Paulo, with the opening of its first unit in Campo Belo, in the southern zone of the city. The results after more than a year of operation were surprising, according to Coltro.
The second store has just opened in Perdizes, in the western zone. The company plans to open at least 4 more stores in São Paulo by December of this year, in central neighborhoods with a high concentration of people. Coltro predicts that if the test is successful, the sky is the limit for the company.
The Express store is aimed at serving customers who need to make a quick purchase for some home repairs and do not have time to go to Homecenter stores, nor want to wait for online purchases delivery.
Leroy Merlin Also Aims to Explore the Concept of “Endless Aisle”
With the new format, the group wants to integrate online sales with physical sales, exploring the idea of an endless aisle. The concept refers to the practice of asking the homecenter for delivery of products that are not available for immediate sale in Express stores. In this sense, Renato Coltro states that the company will take advantage of the large store’s structure to expand its capacity in the city centers.
Eduardo Terra, president of the Brazilian Society of Retail and Consumption (SBVC), analyzes that Leroy Merlin has seen significant growth in recent years with its main model. Today, there are 44 megastores in operation, which secured the group the bulk of revenue of R$ 8.2 billion in 2021.
However, according to Terra, this format has run its course or will do so, and the company needs to continue growing. For him, this exhaustion is due to the difficulty of finding such large areas to open megastores, in addition to the cooling of demand.
In this regard, Coltro argues that the new investment in Express stores does not alter the plan for Homecenter stores. The company has just inaugurated its second megastore in Porto Alegre (RS) and will also open a unit in Guarulhos (SP), not to mention other expansion projects in this format.
‘Homecenters’ Go Through a Process Similar to Hypermarkets
According to Eduardo Terra, large retail companies in construction materials, which only operated through homecenters and are now betting on new store models, are following a similar path to that observed in food retail a few years ago.
The consultant states that the logic of retail is to try to maintain the growth pace of their businesses through store formats that are not exhausted. According to him, a similar process also occurs in the field of pet products.
Renato Coltro mentions that, just as happened among supermarkets in the past, Leroy Merlin is also considering another new format for sales points, of medium size, which is common to the group in countries such as France, Spain, and Italy. These are stores of intermediate dimensions between the megastores and the Express model, with the company interested in adopting them in Brazil.
Express Stores May Be Detrimental to Neighborhood Deposits
In Brazil, small stores, known as neighborhood deposits, are very common in the construction materials retail sector. Thus, the arrival of smaller sales points, but under the banner of large companies, may serve as a significant inhibitor of smaller businesses.
According to Coltro, the Express store and the neighborhood deposit do not operate as competitors, given that the former is more focused on convenience purchases, while the latter focuses on basic materials. The president of the SBVC, however, partially disagrees, as he believes that the Express format will take market share from someone.
Information was extracted from the newspaper O Estado de S. Paulo.
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