ANALYSIS-UK supermarkets turn up heat on specialist retailers

Tag : power tools
United Kingdom - By Mark Potter
LONDON, Oct 7 (Reuters) - Supermarkets, keen to bolster slim profitmargins and cash in on consumers' current focus on value, arepushing further out of their core food market, piling extrapressure on specialist retailers already hit by a downturn.
Asda, Britain's second-biggest grocer, said on Sunday it hadlaunched a non-food Web site, Asda Direct, selling 9,000 goodsranging from furniture and clothes to power tools and toys.
The move expands on the U.S.-owned group's instore non-foodoffering and mimics market leader Tesco (nasdaq: TESO - news - people )'s home shopping business Tesco Direct, launched two years ago.Number three J. Sainsbury plans a similar initiative next year.
The expansion opens a new front in the battle between the bigsupermarket groups and poses a challenge to Home Retail Group'sArgos, Britain's biggest household goods retailer.
But above all, it heaps fresh misery on specialist retailers, whichare bearing the brunt of a consumer downturn that has alreadydriven several of them out of business.
"It's going to add fuel to the fire," said Bryan Roberts, globalresearch director at Planet Retail, who sees homewares, toys andclothing stores as most at risk from the supermarket expansion.
"One implication is the sudden nationwide availability of theGeorge range, which could have quite an impact on fashionretailing," he said of Asda's popular clothing range.
Asda, owned by the world's biggest retailer, U.S. group Wal-Mart (nyse: WMT - news - people ), said its Asda Direct Web site would be followed by a 644-pagecatalogue in the coming days. Customers can initially orderproducts online or by phone for home delivery. Store collection andin-store kiosks will follow.
The multi-channel strategy mirrors Tesco Direct, which now sellsabout 12,000 products online, around 7,000 in its 1,000-pagecatalogue and has 233 sales points within stores.
Home shopping is still a nascent business for supermarkets -- Tescoexpects Tesco Direct to make a trading loss of 20 million pounds inthe year to end-February 2009.
But it is an increasingly important part of an expansion intonon-food goods, as grocers look to take advantage of theireconomies of scale to muscle into a fragmented market which tendsto have higher profit margins than food.

DISTRESS
Retail researchers Verdict estimate grocers already account for 11percent of Britain's 167-billion-pound ($293 billion) non-foodmarket and expect this to grow to around 13-14 percent over thenext two years, helped by multi-channel strategies.
Most supermarket stores are constrained by space and so Web sitesand catalogues are powerful ways of reaching extra customers, whilehome delivery plays to the logistical strengths of grocers, saidVerdict analyst Neil Saunders.
"If you have the choice of buying the same, or a similar, productand the grocer can give you a two-hour delivery slot and can get itto you the next day, and the other player can't, it's a bit of ano-brainer who you go for," he said.
The multi-channel approach is a direct challenge to Argos, whichoffers about 18,000 products from a Web site, 1,800-page catalogueand 700 stores. But analysts believe it has the buying power andfocus on low prices to cope.
More at risk are specialist store groups, which are alreadysuffering as Britons curb spending amid higher food and fuel costs,sliding house prices and growing economic uncertainty.
This is clear from Tesco's interim results, which showed Britain'stop retailer growing sales strongly where specialists aresuffering, signalling it is adding to their woes.
While Tesco's UK non-food sales rose a fairly modest 4 percent to4.1 billion pounds in the six months to Aug. 23, electrical goodssales were up 9 percent, toy sales up 12 percent and do-it-yourselfproducts up 17 percent.
This is in marked contrast to weak results reported by electricalsspecialist DSG, toy-focused variety group Woolworths and DIY-chainHomebase.
Competition from grocers, on top of the consumer downturn, couldpush a growing number of specialists out of business.
Corporate insolvency firm Begbies Traynor has 323 retailers on its"critical watch" list, which it defines as having a 70 percentchance or more of failing, and believes many will struggle tosurvive much beyond Christmas. (Editing by Chris Wickham) Copyright 2008 Reuters, Click for Restriction
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