Action continuing stunning growth
The Dutch discount retailer Action has long been one of the biggest growth stories in the European retail market. In the growth spurt of the last decade, the company has multiplied to over 10 billion euros in revenues.
3i, the private equity investor of Action, has seen Action's valuation hit the 100x mark this summer. This means it took 12 years for 3i to 100x its investment in Action.
Action has continued with a 20+% growth for 2023. Only during the pandemic Action grew by less than 20%. Action's like-for-like ("LFL") sales growth was very strong at 19.2%. According to the company, this was driven primarily by higher customer footfall.
Action is not only impressive in its growth, it is also robustly profitable. The company's EBITDA grew (Last Twelve Months) to the end of September by +48%. The operating margin of Action increased to 14,3%.
The company has been astonishingly fast in opening new stores and new markets. The company added 153 stores in the first three quarters of the year. This included 11 new stores in the 11th new market, Slovakia. The company says that it will open a total of about 300 stores this year.
Stable margin as a moat - the Costco way
Action saw almost all categories growing strongly, but" things like laundry and household and things like that have been the very strong performers”. About half of the 14 categories the company sells saw LfL sales grow by more than 20%. Only one category had high single-digit growth.
In the 3i quarterly report, the company's CEO explains the Action model of discount retailing. The company keeps its Gross margins fixed even though the suppliers give better terms as the volumes grow. This creates a positive flywheel of lowering prices and further increasing volumes. Costco is the gold standard in this way of retailing.
“Some of our vendors have had lower orders from other retailers. And so we’ve been able to secure really good prices and we’re sticking to our 40% gross margin. So the benefit of those much lower COGS are all being passed through to the consumers, which is really creating a significant further price advantage for us and widening our moat.”