Connecting to LinkedIn...

Can Asda achieve its non-food goals?


Notable in its absence from Asda’s trading update on Tuesday, was any mention of the retailer’s expansion plans regarding its non-food only stores.

In April Asda announced its ambition to open 150 of its Asda Living outlets by the end of 2015, but to date only two new stores have appeared and just two more are planned for next year.

With non-food store sales consistently low and footfall for the sector decreasing year-on-year in October for the 12th month in succession, according to Synovate’s Retail Traffic Index, the market is not ripe for store growth.

Clive Black, Retail Analyst at Shore Capital, commented: “When Asda announced its target of 150 Living stores we thought it highly ambitious.

“The two stores opened since then and the two more planned for next year represent a massive retrenchment and severely questions their targets.”

Not everyone is so withering in their analysis however, and Nick Bubb, Senior Retail Analyst at the stockbroker Arden Partners, thinks criticising the speed of Asda Living’s growth is “a bit mischievous”.

Asda made it very clear back in April that it would take time to jack up the pipeline of new sites, having cut back site acquisition during the recession, and that there wouldn’t be many openings this year,” he continued.

Locating and securing the necessary out-of-town sites may by part of the problem for Asda, and Bubb points towards Halfords’ announcement today that a lack of retail park development activity is stalling its expansion plans too.

It is still a retailer’s market for property at present however and as Retail Gazette investigated last week the scales are likely to be tipped further towards landlords in the coming years.

Black said: “The retail commercial property market is as strong as ever. Asda may be struggling to locate purely suitable property for its Living stores but I suspect the limited expansion has more to do with performance.

“To reach 150 by 2015, at this rate, Asda may eventually need to start opening one new store a week, which though not impossible we think it is unlikely.”

A desire to increase its non-food offering is understandable given the fierce competition of the grocery market and it is a desire shared by Asda’s rivals.

At the Oracle EMEA Grocery Forum earlier this year, Sainsbury’s Head of Trading and Supply Chain Gary Balmer outlined his company’s ambition for 23 per cent of all of its retail space to be non-food by 2013/14.

Sainsbury’s is very proud about the improvements to its non-food offering over the last decade and believes that a growing desire by consumers to centralise their shopping trips offers increasing opportunities for multi-sector retailers.

David Buik, analyst at BGC Partners, commented: “The one stop shop has been part of US retail culture for 25 years with Walmart the pioneer. So logically you would be forgiven for thinking that Asda would have followed in their wake.

“However because Tesco seemed to be so far ahead of the game in the one-stop-shop arena in the UK, no one has really caught up.”

As sales growth flat-lines across much of the industry, the best option for growth is through store expansion or increasing product lines.

Sainsbury’s approach has been to incorporate more non-food lines into its larger outlets rather than taking the riskier Asda route of competing directly with other non-food retailers.

Few industry voices can be heard backing the Asda route at present and with new stores coming in a trickle rather than a flood it seems the grocer may be regretting its bold claims made in the spring.

Black added: “The question is: Does this type of out-of-town store work? I think the footfall generated at traditional food stores makes it a much more compelling format.”

Grocers are not the only retailers looking to expand in the UK, with fashion labels in particular looking to extend their reach.

Non-food expansion is highly attractive to the major grocers but with Tesco’s pre-eminence and quality competitors it will be easier said than done.

Buik concluded: “With Primark, Topshop, Marks & Spencer and Next filling so many requirements and let’s not forget the incredible role the John Lewis Partnership plays with Waitrose with their own clothes and electrical equipment, this will prove a hard nut to crack for Asda or Sainsbury.

“The space for expansion is there but is the demand? Many have their doubts.”

By Jon Whiteaker

Published on Friday 19 November by Editorial Assistant

Articles similar to Asda Living

Articles similar to Real estate

comments powered by Disqus