Wal-Mart reaffirms commitment to Asda amid falling sales

Falling footfall at Asda has contributed to a 7.5% drop in sales, but the retailer’s US parent company said it remained committed to turning around the business.

Asda’s parent company, US retail giant Wal-Mart, noted the fierce competition and food deflation in the UK which had continued to challenge the market and significantly impact traffic and comparable sales trends in the three months to the end of June.

“During the quarter, comparative sales, excluding fuel, decreased by 7.5%,” it said.

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Wal-Mart chief executive Doug McMillon said Asda’s decline was being addressed with “urgency”, but warned that it would take time to turn around the business.

McMillon said the strategy remained focussed on improving the retail basics, highlighting that it would simplify and strengthen its offer through” improved availability and assortment discipline, reducing costs through our cost analytics program and driving sales through strategic price investments where we remain committed to the previously announced five-year £1.5 billion price investment,” it stated.

It follows similar pronouncments by Asda’s former CEO and president Andy Clarke in May, before he stepped down in June, when he said he remained committed to the five-year strategy the retailer had laid out, and promised that there would be no “knee-jerk” reaction at the expense of long term profitability. It followed a 3.9% fall in May in like-for-like sales for the 15 weeks to 19th April

Retail analysts Clive Black and Darren Shirly and Shore Capital said Wal-Mart’s comments dispelled the rumours of a retail “Armageddon” that would kick off another price war, commending the company for outlining a “rational plan within existing price parameters”.

“We believe that this is good news for sector sentiment, particularly for the UK listed supermarket groups,” they said. “It is not surprising to our minds to see Asda reiterate the ongoing relevance of Project Renewal, which as may be expected, is focused upon lowering the cost of goods and operating expenses.”

Retail outlook post-Brexit vote

Meanwhile, the first post-Brexit referendum ONS sales data showed an encouraging performance, according to Shore Capital, whose analysts argued that deflation had “bottomed out”, with prices beginning to start to increase, despite the continued pressure on food retailing.

However it concluded that it wasn’t clear if the effect or the Brexit vote had been felt. ’”As time passes we expect a more detailed picture and trends to emerge about the possible impact the Referendum outcome may have on the retail industry and consumerism in the UK,” analyst George Mensah said.

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