In the early 1990s an American Company called Costco declared their intention to open stores in the United Kingdom. This was a concept called a Warehouse Club which had a strict membership requirement for people who wanted to shop there. However, the strict membership was open to interpretation and allowed not just limited companies but individuals to be members providing they met certain criteria.
There was a fear in the retail industry in the UK that others would follow from America and that they could prove a great threat to the existing supermarket hierarchy enjoyed by Tesco, Sainsburys, ASDA, etc. However, whilst it is true to say that a company called Makro had been trading in the UK for a large number of years, it was the thought of an influx of American companies that caused Tesco, Sainsburys and ASDA to club together and fight a planning application at Thurrock being made by Costco. Unfortunately that challenge did not succeed and Costco accordingly were granted planning consent.
At the same time an existing UK company called Nurdin & Peacock decided to open an American style warehouse club called Cargo Club and in a very short space of time they acquired sites in Croydon, Birmingham and Bristol. Each one of these sites had planning consent for retail and each store was approximately 130,000 sq ft.
Whilst Costco seemed to succeed with their warehouse club concept it would appear as though the Cargo Club did not live up to expectations. I was aware of that fact and therefore I suggested to Sainsburys that they should consider making an approach to Nurdin & Peacock to buy these three large retail outlets with a view to putting a Savacentre into each one of them. As club membership was for a twelve month period, it became obvious that the pressure would be on Nurdin & Peacock to gain substantial renewals of membership after the first 12 months. When it became obvious that membership renewal was not as high as expected there was increasing pressure on Nurdin & Peacock to do something about the operation or face closure.
I was instructed by Sainsburys to enter into negotiations with Nurdin & Peacock to purchase all three properties and eventually a price of £45 million was agreed. One of the advantages of this transaction is that it effectively took out of the marked one of the warehouse club operators leaving Costco (and Makro) as the only competition.
However, after a period of assessment Sainsburys decided not to continue with the operation of the Savacentre name and operation. Accordingly, I was given instructions to sell Birmingham and let the Croydon store whilst Sainsburys decided to open the Bristol store as a Sainsburys supermarket.
The property in Croydon was situated opposite the IKEA unit which had been developed in the old power station just off Purley Way. JS Developments were to consider the division of the store into smaller units. It was important to get an anchor. I had spoken to Lord Kirkham of DFS but he had not yet been to Croydon and was reluctant to commit himself as his company was largely represented in the North. With poor initial response Sainsbury decided to sell the property.
There was keen interest from many developers to purchase because it had an open A1 planning consent. A number of developers expressed an interest but at the end of the day an offer at £21,500,000 was accepted from Castlemore Securities. This bid was largely based on a pre-let to DFS and there were strong links between DFS and Castlemore.. I was jointly retained to let the property with Harvey Spack Field.
The other property in Birmingham proved a little more difficult to dispose of as it had a very restricted consent which effectively meant it could only be used as a warehouse club. We did eventually obtain a proposal from Costco but their offer was conditional upon a number of factors which Sainsburys found difficult to accept. In the months up to the offer being made by Costco interest had been expressed by Tony Gallagher who had substantial property interests in the area and was keen to get involved with future development. Just prior to instructing solicitors regarding the offer from Costco, Gallaghers made an offer which was higher than Costco and without conditions. However, bearing in mind the earlier interest of Costco, I was instructed by Sainsburys to accept their lower offer if they withdrew their conditions. This they refused to do and accordingly my instructions were to sell the property to Tony Gallaher for a figure of approximately £17.5 million.
It later transpired that he was fronting up this purchase on behalf of B&Q who eventually obtained planning consent to redevelop the whole site for a new B&Q warehouse knocking down the existing Cargo Club which had only been standing for about two or three years.
Although the original intention was to acquire three new retail outlets for Sainsburys, at the end of the day they were able to open a new superstore in Bristol at a total net cost of £6 million which would be considerably less than the construction cost let alone the land value they would have had to pay in the open market.