Big Yellow slashes staff and turns to automation after Reeves’ business rates blow
Big Yellow continued to trim its headcount and hike investment into automation in a bid to cut staff costs, as the company continues to deal with the fallout of Reeves’ decision to hike business rates.
The Chancellor’s decision to increase both national insurance and minimum wage in the 2024 Autumn Budget, caused the group to up its automation capabilities to absorb the costs and protect revenue after it came into effect last April.
The firm opted to continue investing as it allowed it to “not replace certain leavers in the business”, ultimately reducing headcount and staff costs without “impacting customer service”.
The self-storage centre operator is also investing in both solar and broader energy efficiency. The move is expected to “deliver further reductions” on utilities spending.
Self-storage warehouses typically require more energy than others because of temperature control needs, continuous lighting and security systems.
Savings from reduced utility costs should also help offset some of the impact of the increase in property rates from this year’s rating revolution, the FTSE 250 group said.
The changes in April led to rateable values for warehouses in the UK rising by an average of 21 per cent.
Big Yellow said it expects the initiatives to lead to a four per cent increase in store operating costs on a like-for-like basis in the first half of the financial year with a lower increase in the second half.
Shares dipped 1.5 per cent in early trading to 865.5p, with the stock losing 13.9 per cent since January.
Waiting on the Budget
Chief executive officer Jim Gibson admitted the group expects the operating environment to remain challenging despite efforts to trim costs, as businesses await decisions in the upcoming Autumn Budget.
Gibson said: “We recognise that the operating environment may continue to be challenging in the months ahead, given the current fiscal and budgetary uncertainties, which will likely not be clarified until the autumn.”
But the group anticipates its new store development to “drive significant value in the years ahead”.
It acquired a new freehold site in Acton in the first financial quarter, causing it to have 12 stores now in construction, planning or development.
The group is on site for six of these stores, with four expected to open this financial year in Staples Corner, Kentish Town, Wapping and Epsom.
Mark Crouch, market analyst at Etoro, said: “Despite another resilient quarter, Big Yellow remains stuck in storage from an investor sentiment perspective, with higher interest rates and lingering concerns over UK property valuations continuing to weigh on the shares.
“Management continues to invest in new stores, automation and energy efficiency, while recycling capital from mature assets to fund future growth. If inflation and borrowing costs begin to ease, investors may start to look beyond the near-term headwinds and recognise that Big Yellow’s long-term growth story remains anything but boxed in.”
Increasing rent
The operator also sold its industrial estate in Harrow for £38.4m. Proceeds from the sale will be injected into the construction and redevelopment of the 12 stores in its pipeline.
The new stores are anticipated to generate £35m of net operating income.
Elsewhere, revenue increased three per cent to £53.2m, up from £51.5m the prior year.
Leased store square footage also grew five per cent to 6,721,000 square feet. This led average net rent per square feet to rise three per cent to £36.6 from £35.6.