Asda has suffered the worst sales performance in its 50-year history. Like-for-like sales fell by 4.7% in the second quarter, though profits held firm. This was its fourth consecutive quarterly fall in sales. Ada has also lost its position as the UK’s second-biggest grocer to Sainsbury’s.
Asda’s American parent, Walmart, cut its annual profit forecast as earnings for the three months ending on 31 July declined by 15% to $3.48bn. The group was recently eclipsed as America’s biggest retailer by Amazon.
What the commentators said
“Is the big-box store going the way of the department store?” asked Lex in the FT. Walmart’s second-quarter results “will not silence the persistent questions about its business model”. The strong dollar and a struggling global economy were partly to blame, but key culprits were investment in higher staff wages and ecommerce, which have squeezed margins. US shoppers have grown indifferent to Walmart: same-store sales have been weak for five years, while “other corners of US retail have grown”. It needs to invest to “stay upright”.
Asda, by contrast, isn’t stuck with too many US-style hypermarkets that have fallen from favour, said the FT’s Jonathan Guthrie. That has saved it from huge write-downs. On the other hand, it has two handicaps, noted Larry Elliott in The Guardian.
It has no presence in the smaller convenience stores that are growing popular as shopping habits change, and it has refused to follow Tesco and Morrisons in launching voucher schemes that are “in effect handing free money to customers”. So its sales are poor, but its margins are holding up. Asda is “taking the long view”, said Alistair Osborne in The Times, concentrating on earnings and refusing to chase sales. This approach “befits a company backed by Walmart’s muscle”.