MORRISON WM SMKTS (LSE:MRW)

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Morrisons purchases 49 Blockbuster stores

Morrisons (MRW) has announced the purchase of 49 stores from Blockbuster, the film rental chain, which recently went into administration.

The purchase is part of a £100 million multichannel expansion kick-off for the grocer, which has been behind its competitors in establishing a convenience-store strategy as well as home-delivery service.

The 49 stores are being purchased for an undisclosed sum, according to Deloitte, Blockbuster's administrators.

After declaring its intention to launch 70 convenience stores by 2013-end, Morrisons acquired seven stores from camera retailer Jessops and rebranded 12 "M Local" stores it already owned. It also purchased a 100,000 square feet multi-temperature distribution centre in Feltham, west London.

The 49 converted "Morrisons M" shops should open after mid-2013, and employ over 1,000 staff, according to the retailer.

The grocer is expected to announce the inauguration of its online delivery service during its full-year results on 14 March.

By launching its convenience stores in London and the south east of England, Morrisons is hoping to grab market shares in the southern regions, where it only holds 6% of market share compared to 11% nationally.

Analyst view

"We continue to view Morrisons as a poorly-positioned company within UK food retail, with relatively weak market share relative to competition, low exposure to the convenience channel and currently no online food business," commented Taylor Webb from the Securities Division at Goldman Sachs International.

The analyst, who was concerned that the sustained negative like-for-like sales performance will pressure margins in the 2014 financial year by end-January, said the company's plans for the development of an online food business were "a key focus".

After a depressing 2.5% fall in like-for-like Christmas sales excluding fuel and VAT, the stores purchase comes as good news for the FTSE 100 supermarket operator.

But Philip Dorgan, investment analyst at Panmure Gordon, said: "It is really a small move for now," adding Morrisons had to "build up a big chain for it to become exciting."

Investor view

Interactive Investor discussion board user 'NortonFolgate' welcomed the move on the discussion boards, saying despite the grocer's four main weaknesses - "too small a footprint in southern counties, lack of convenience stores, negligible presence in non-food markets and absence internet shopping facility" - "the Blockbusters move has turned MRW into a buy for me".

'Owen Nobody' also commented the purchase of M Local stores looked "a positive acceleration of the company's strategy".