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Asda sees delay overtaking Tesco in non-food sales

Wal-Mart Stores Inc's Asda supermarket chain may take longer than planned to meet a goal of overtaking Tesco Plc as the U.K.’s largest non-food goods seller, according to the head of its George clothing brand.

Asda’s objective of surpassing its rival by 2015 may be hindered by a slowing economy, with a volatile consumer climate and increased sourcing costs becoming the “new normal,” George Managing Director Andrew Moore said in an interview.

“We are still motivated by the challenge of significantly growing our non-food business, but we might have to take a leaf from George Osborne about the timescale on it,” Moore said at his offices in Lutterworth, England. He referred to comments this week by the Chancellor of the Exchequer that the U.K. faces an additional two years of austerity cuts as the euro-region debt crisis has a “chilling effect” on the economy.

Stagnant sales and rising costs of materials such as cotton have caused retailers to curb expansion. Billionaire retailer Philip Green announced last week that he planned to close about 250 stores in the next few years. Asda, the U.K.’s third-largest clothes seller, said last year that it planned to add 150 Asda Living stores to achieve its goal of non-food leadership.

“The difficulty about making categorical statements like that is you also have to make some reference to what everyone else does and what happens to the market,” Moore said of the Leeds, England-based retailer’s plans. “So yeah it could happen, but it depends what happens in the market and what level of investment our competitors want to put into it.”

Mild Weather:
Asda continues to add Living stores and its “aspirations” for opening the outlets are unchanged, a spokeswoman for the retailer said by e-mail, without giving a timescale.

Asda and Tesco have a higher proportion of non-food sales than competitors such as J Sainsbury Plc, making them vulnerable to a reduction in discretionary spending. Tesco’s non-food revenue slumped 4.8 percent in the first half as shoppers made fewer visits to its large-format stores.

“Against a backdrop of a general merchandise market that’s seen a slowdown in recent times, a slowdown in Asda’s plans seems sensible,” said Nick Coulter, a food retail analyst at Nomura in London. Coulter estimates that non-food products represent about 15 percent of Tesco’s sales. Asda gets about 20 percent of revenue from non-food, of which George represents about half, according to the spokeswoman.

Gift Buying:
Rising prices have led Britons to purchase fewer expensive items such as winter coats, while essential products such as socks and underwear have gained, Moore said.

The executive said he expects a “definite shift” in Christmas buying this year toward practical gifts such as scarves and hats and away from “gimmicky” items such as mugs. Asda typically makes about 10 percent of annual sales in the holiday season. Innovations such as the 6-pound AbracadaBRA, a bra that adds two sizes, are also likely to be popular, he said.

Moore became head of the George brand in March last year, replacing Anthony Thompson, who resigned to join Fat Face, the sports clothing chain. He joined Asda from South Africa’s Woolworths Holdings Ltd. in 2008, and worked for 25 years at Marks & Spencer Group Plc, the U.K.’s largest clothing retailer.

Plans to open George franchise outlets in the Middle East in the first half of 2012 are on schedule, the executive said.

Source : Sarah Shannon – Bloomberg

02 December 2011
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