Business Analysis: Managers fired on the spot as Asda fights the flab with 1,400 job cuts

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The Independent Online

The group is cutting 1,400 jobs, including 200 across staff at its main head office at Leeds and the centre of its sprawling George clothing empire at Lutterworth, Leicestershire. At Asda House, David Downie, the former logistics director, was among those to be dismissed as part of the shake-up instigated by the new chief executive, Andy Bond.

The first thing head office employees - or "colleagues" in Wal-Mart parlance - knew of their fate was via a message on Monday evening, ordering them to assemble at 8.30am sharp yesterday morning. The blow was delivered by a series of one-on-one meetings, at which staff earmarked for the chop were promptly handed their redundancy papers and told they had 30 minutes to gather their belongings and leave the building.

Although Asda insisted it was axing only 200 jobs across its two nerve centres, staff told GMB union officials they feared as many as 500 posts were at risk. GMB, which was pushed into the shadows during Archie Norman's era, said it planned to lodge a "protective award" claim on the grounds that executives had opted to skip any consultation process before wielding its axe.

Within Asda's 279 stores, the redundancy process was said to be just as brutal. After regional meetings at Gloucester and Penrith on Monday night, managers took a quick stock check of in-store managers' appraisal records and attendance histories and started sacking staff on the spot. In all, 1,200 managerial posts are going across the group's store estate, with security and customer care managers understood to be first in the firing line.

Harry Donaldson, who represents 25,000 Asda staff who belong to the GMB despite its lack of recognition, said: "How can a profitable industry like the supermarkets and a company like Asda treat its workers as disposable items?"

Mr Bond, who was promoted from chief operating officer in April after Tony DeNunzio left abruptly to join the Dutch retailer Vendex, said the company had become over "complicated and bureaucratic". The keep-fit fiend, who hasn't let running the UK's No 2 supermarket group interfere with his daily 45-minute workouts, added: "We've woken up and we've got a little bit flabby. We need to get ourselves fit. It feels painful."

Despite Mr Bond's protestations that yesterday's cull had "absolutely nothing" to do with Asda's slowing top line, few in the City saw the move as anything other than a desperate attempt to offset the group's recent poor performance. Since the start of the year, Asda's share of the grocery market over a 12-week period has dwindled from 17.1 per cent to 16.4 per cent in June.

"Asda's woes get worse and its performance is deteriorating," analysts at Smith Barney, part of Citigroup, told investors after the release of last week's market share data from the research outfit TNS Superpanel. They said Asda recorded its "worst ever implied sales growth" last month at just 1.5 per cent. And all this after Asda missed its operating income target for its first quarter, putting its annual profits "behind plan".

Even as Tesco increases the clear water between itself and Asda - the gap was up to 13.9 percentage points in June from 10.5 percentage points two years ago - J Sainsbury has raised its game and is closing in on Asda. For the first time in 10 years, Sainsbury's sales are outpacing those of Asda.

For the record, Mr Bond claims not to care about where Asda comes in the supermarket league table but it is an open secret that Wal-Mart does not enter a new market - especially not one that accounts for half its international sales - to be No 3. So where has Asda gone wrong?

For starters, the group has fenced itself into something of a box with its simplistic low-price strategy. Its main appeal has long been to cash-strapped shoppers looking to stock up on household basics for less. Thanks to Asda's history and Wal-Mart's legacy in the realm of non-food, customers are as happy to shop at Asda for cheap towels and tops as cheap teabags.

Paul Smiddy, at Robert W Baird, said: "Asda has had an exceptionally good run. It has had a boost to sales [from the massive investment in prices as a result of its takeover by Wal-Mart] that has proved transitory. It has reached a natural level of local market share. It has soaked up price sensitive customers and it is clearly not appealing to people who aren't that price sensitive."

Analysts at Smith Barney added: "Asda's problems stem from an intransigent strategy, where it has only promoted on EDLP (everyday low pricing) for so long that any changes in strategy are taking a long time to feed through to customers. A move upmarket with "Extra Special" ranges and more multi-buys do not seem to have had any short-term impact on sales."

As well as a resurgent Sainsbury's, Asda has suffered from Safeway's conversion - albeit somewhat botched - at the hands of Wm Morrison into a third major player to go down the "everyday low price" route.

Because of its focus on hypermarkets - its average store its 40,000 square feet - Asda has eschewed the chance to build a presence in the booming convenience store sector, which has done so much to boost Tesco's top line and offset the difficulties associated with opening large stores. Yet its failure to persuade the Government to let it bid for Safeway has left it hamstrung in terms of gaining critical mass.

One retail analyst, who did not wish to be named, said: "Asda faces structural issues because it is not able to operate the same array of formats [as Tesco], so it is not laying down as much new space and not improving its buying terms and efficiencies as much. If they want to kick-start sustained sales growth they have to figure out how to open more hypermarkets, improve their brand appeal or operate supermarkets better."

Mr Bond has said it will take at least 18 months to get Asda's performance, which he admitted was below par, back on track. He countered: "It [the slowdown] is off the back of four years of extraordinary growth. While unacceptable, a slowdown was always a possibility."

He intends to introduce more promotions; rely more heavily on the sort of in-store "theatre" that was a feature during Mr Norman's tenure; improve in-store retail standards; and push Asda's non-food lines more aggressively to get the sales line moving. But he conceded this could not come at the expense of the bottom line. "My intention is to create an environment of profitable growth. I do not intend to mortgage profitability for an extraordinary sales line."

Whether this will be enough to stave off either criticism from Wal-Mart HQ in Bentonville or Sainsbury's hastening advance is far from clear.