Asda's Performance Indicates Challenges Facing New Owners, Say Analysts
Asda's quarterly and Christmas performance shows that new owners Mohsin and Zuber Issa, along with private equity group TDR Capital, have their work cut out for them in terms of determine the retailer's long-term strategy.
The UK retailer reported a 5.1% rise in same-store sales over the three months to December 31, which while an improvement on third-quarter growth of 2.7%, is still behind many of its competitors.
While there are some mitigating circumstances, such as Asda's decision to compassionately close stores on 26 December, the results are still "well below par," according to Thomas Brereton, senior retail analyst at GlobalData.
"We’ve now seen several consecutive periods of underperformance from Asda, which points to underlying problems with its strategy that have been made more readily visible over the COVID-19 pandemic period," he said.
"For example, despite Asda’s relative strength in the online market pre-2020, others (particularly Tesco) responded to the shift of spend to the channel with much greater dynamism, ramping up store picking and fulfilment far quicker than Asda."
'In the Right Direction'
Brereton added that many of the retailer's other trial initiatives, such as the unveiling of a 'sustainability store' last October, also show the retailer moving in the right direction, but somewhat slower than the competition.
"It is clear then that, under the new owners, Asda’s long-term strategy needs an overhaul," he said. "It must be comfortable knowing where it sits in the grocery market, particularly around its ability to maintain its value reputation against the prosperous discounters, and how that cooperates with expansion of the digital side of operations.
"Overcapacity is another important issue, and Asda must implement more effective procedures than agreeing in-store partnerships with a jumble of retail partners – including tired brands such as Accessorize. But however Asda proceeds, the Issa brothers must remain attentive to the business, else sales (and potential profits) will be eroded by the waves of better equipped retailers.”
Elsewhere, Shore Capital's Clive Black said that the Issa brothers have a reputation for being "very entrepreneurial and we shall watch with interest to see how they craft the business going forward, noting that they have talked about working with consumer brand partners, so no doubt more activity on asset intensity and destination credentials, as well as a focus upon the online channel."
He noted that Asda is "well operationally and financially leveraged", meaning there is rightly pressure on the business to "deliver steady same-store sales growth to maintain EBITDA margins because this is a sector where slippage takes time and resource to stabilise.
"In this respect, all of the entrepreneurial flair, agility and ability of the Issa Bros, may need to come to the fore."
© 2021 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.