Asda's ambitions on hold as non-food chain falters

Asda's plans to leapfrog Tesco to become the UK's biggest general merchandise retailer appear to be stalling after it admitted that it is set to open only two new Asda Living non-food stores in 2011.

After unveiling just two shops this year, the Walmart-owned supermarket chain now has 25 Asda Living stores, which sell products such as its George clothing brand and homewares.

Its sluggish opening programme is a far cry from the grandiose plans it unveiled in April. Back then, Asda said it wanted to expand its Asda Living chain to 150 shops over the next five years. To reach that target, it will now have to add 125 stores, including the two that are due to open next year, by the spring of 2015.

In April, Asda's chairman, Andy Bond, said: "Over the next five years, we have two clear aspirations – to be the market leader in general merchandise and clear number two for food."

He added: "With our new format strategy, our aspiration is to have a chain of 100 smaller Asda supermarkets, helping us reach customers who find it difficult getting to one of our larger stores, and 150 Asda Livings."

In fact, Mr Bond said there were "probably 300" locations that could take an Asda Living in 2007.

Robert Clark, the senior partner at Retail Knowledge Bank, said: "I suspect the main issue with the separate non-food stores for the major grocers is probably more to do with property and acquiring the right sites, despite it apparently being a good time to go into them.

"Over the last two years, it has probably proved more difficult in practice than they were expecting."

As well as selling more non-food products in its stores and opening more Asda Living stores, Asda could achieve its aspirations by acquiring a non-food retailer, such as Home Retail Group's Argos and Homebase chains.

An Asda spokesman said: "It remains our long-term aspiration to have a chain of 150 Asda Living stores, but we'll only open them when the market conditions are right."

He added that in the last quarter Asda had introduced non-food initiatives, notably Asda Extra, which allow customers to order goods from in-store terminals or an online catalogue in selected shops. It has also recently launched its "Buy, Play, Trade" scheme in more than 200 stores, whereby customers can trade in their old games for other titles or credit elsewhere in-store.

But Asda is not alone in labouring to introduce standalone non-food stores, which do not benefit from the same huge weekly footfall as food stores.

Tesco opened its first Homeplus non-food store in Manchester in 2005, but so far it has added only 12 more. Mr Clark said: "You could argue that Homeplus is a stillborn for Tesco."

But Tesco said yesterday it remained committed to Homeplus, which it has tweaked over the years by adding Tesco Direct catalogues and Argos-style ordering terminals.

Furthermore, Tesco remains a general merchandise giant, whose global non-food sales rose by 6.2 per cent to £13.1bn (£9bn from the UK and £4.1bn from overseas) in the year to 27 February. Asda does not break out its UK non-food sales, but they are substantially lower than Tesco's.

On Tuesday, Asda said underlying sales rose by 1.3 per cent for the three months to 30 September, its first growth since the final quarter of 2009.