Asda wants to grow its empire but is taking over Littlewoods or Woolworths likely to deliver more problems than profits?

Tony DeNunzio, the boss of Asda, might have told The Grocer in an exclusive interview that Tesco had an unassailable lead in food and that he had “no specific objective to be number one in food” (October 23, 2004, p28). But he obviously wants to grow aggressively in whatever ways remain open.
With the news that Asda has been linked with a takeover of Littlewoods and is considering a bid for Woolworths, he may have found a way.
Not that the chain had been idle, expanding its successful George clothing brand into the high street and opening its first standalone general merchandise store, Asda Living, in Walsall. In Wal-Mart’s third-quarter trading statement at the end of last year, sales at the outlet were reported as “exceeding expectations” while all six pilot standalone George stores had a good Christmas. Appropriately the best-performing store was in Liverpool, home of Littlewoods.
But taking over tired variety store brands is a different matter. Why will Asda succeed where once dominant names such as Woolworths, Littlewoods, WHSmith and Marks & Spencer have faltered? Not to mention the slow death of the department store format, with Allders going into administration and Debenhams floundering. So Asda’s strategy raises questions. “It would indicate a change in strategy from edge-of-town to in-town and might require a food offer as well,” says one analyst.
But how many of Littlewoods’ 119 main stores and 70 Index outlets have consent to sell food - and how easy would it be to get a change of use?
Analysts are sharply divided as to whether the strategy can pay off. According to Jonathan Pitkänen, senior retail analyst at ratings agency Fitch Ratings, the acquisition of Littlewoods would be risky because of the mismatch in the two retailers’ portfolio of stores. “Asda’s land bank is diminishing, so this might increase that, but many of the stores will not work for them. If you go for the high street you need convenience size.”
The average Littlewoods is 16,500 sq ft. A multiple c-store is more like 2,500 sq ft.
Even if Asda could develop a workable offer, its distribution network is not geared up to deliver to small stores. The average Asda is 45,000 sq ft. However, it does have a separate distribution network for George.
And can the Asda name translate to the high street? Pitkänen says: “This would be relatively high risk for Asda - the name is recognised but perhaps not well enough to get customers through the doors.”
Asda has been after an acquisition for some time. It has previously been linked with clothing retailers Matalan and Peacocks and is expected to look at Woolworths after shareholders this week signalled that they would be willing to accept 50p a share.
And there is a precedent for turning round a tired high-street brand - just look at how Bhs’ fortunes have changed since retail entrepreneur Philip Green took it over.
Asda is rumoured to have made an unsolicited bid of £500m for Littlewoods. When owners Sir Frederick and Sir David Barclay bought the company in 2002, they paid £750m. At that time Littlewoods received assurances that the business headquarters would be kept in Liverpool.
Asda does not deny the claims it has made an offer but a spokesman says: “It is rumour and speculation and we do not comment on that.” And the Barclays have invited offers from other retailers.
Evolution analyst Nick Bubb thinks an offer for Woolworths may be more realistic: “The Barclay brothers seem to want a high price for Littlewoods.” But he thinks such a move would be an ideal way for Asda to expand its portfolio: “They are keen to find ways of expanding. Non-food in the high street is the obvious way to do this.”
And with Tesco set to trial a standalone non-food format, it is not far behind.