Asda’s announcement that 4 of its 25 Asda Living stores were potentially closing and Tesco's redundancies in its Non-food trading team makes it a good time to look at the world of Non-food in grocers.
Not too long after Tesco closed it's last few standalone Home & Wear stores, Sir Terry Leahy took Tesco on a journey to a promised land where 50% of their turnover came from non-food. Last year, Andy Bond announced a rare aspirational target of making Asda number one in non-food. But with Tesco hinting in their interim statement that non-food was behind the UK slowdown and Andy Clarke announcing that Asda's Living format expansion was being slowed down (or halted as some cynics would say), has the non-food dream ended?
It's probably worth starting with a look at why food retailers got into this in the first replace.
Leahy's vision when opening the first Extra hypermarket at Pitsea in 1997, was to create one-stop destination shops. To do this, non-food was key. It's incredible to think now when you at Tesco's incredible electrical departments that only 14 years ago, it was a ramshackle collection of grey market tellies being sold off white grocery shelves. Clothing was limited to last season brands off the grey market and the shortlived "T for Tesco" label. Now Tesco are a top 5 clothing retailer thanks to the Florence & Fred range.
Of course, maximising the proportion of consumers disposable income spent in your stores has its benefits as does changing your margin mix. The ability to add in higher value products which deliver relatively huge margins has help Tesco and Asda effectively cross-subsidise lower prices on core grocery lines and provided fuel for the price wars of the last 10 years.
When the credit crunch hit in 2008, Tesco and Asda must have started rubbing their hands. Rick Bendell boldly claimed that Asda would “rebuild Britain” through Darren Blackhurst’s obsessive volume drive on basic non-food items. The theory was that selling Dinner Sets at £3 would drive huge volumes and that these volumes would bring better factory prices. It also assumed that the disposable age, where shoppers would think nothing of replacing homewares and electricals on increasingly frequent cycles, would go on forever.
The resulting recession and lack of return to strong growth in the economy has instead made them retreat to old habits. Rather than spend £250 on a PL television which won’t have the latest spec and may not last much past its warranty, we’d now rather put our trust in a Sony or Samsung and spend £350. And even then, we won’t be doing that on a whim anymore. In times of trouble, brands are seen as a safe harbour and homewares are seen as in investment of sorts.
The other big dark cloud is the exchange rate; non-food deals are generally done in $US and getting your forecasts on the rate wrong can have disastrous circumstances, losing you money before the stock has even been pulled off the boat. Add in volatile cotton prices and potential inflation in China and it no longer looks such an easy buck.
The earliest non-food plays were Home Entertainments and Books of course. The grocers have done much to lower prices on these products, arguably contributing to the demise of High Street specialists, but will now themselves be suffering from the march of digital. Even selling the hot DVD launches at a big loss to drive footfall isn't as effective as it used to be. And what happened to CDs, then DVDs, now looks to be happening on Books with the expansion of Kindles and their kind. Games is the last island of hope but that won't last forever - enjoy those midnight queues for the latest Call of Duty release while you can.
The reality now facing Tesco and Asda in particular now is that they have a large proportion of space dedicated to products their shoppers no longer want and often on mezzanines which are notoriously hard to get shoppers up to to. People looking for non-food bargains are happy to put their trust in the ever-improving Wilkinsons stores, leaving the grocers high and dry.
All can not be total doom and gloom though - clothing is still strong, although in Primark you have a tough market leader for budget fashion. In George and F&F, there are some brands while JS is starting to gain momentum with Tu, helped by some injection of credibility from Gok Wan. Morrisons have chosen to go with Peacocks which makes sense, even as an interim stop-gap to free up the space and establish their larger stores as a one-stop shop alternative.
Click-&-Collect may also prove to be a saviour. Tesco's catalogue operation looks slick and must be hurting Argos while it's only a matter of time before Asda actually manage to get their act together with their Direct website.
I believe there is a future for Leahy's vision in terms of getting all you need under one roof - petrol prices alone suggest it makes more sense than ever - but it will look very different. 50:50 space splits in 100,000 square foot stores will surely come to an end - and hopefully customers might start to get some space to breath in cramped mezzanines. After all, who wants to chose stuff for their home in a 5ft wide aisle with a load of people with trollies around them?