UK chains tremble at advance of American megastores

By Dan Gledhill and Emma Cook

By Dan Gledhill and Emma Cook

07 November 1999

The High Street has been a tough place to be this past week.

First came news that Safeway, Britain's fourth largest supermarket chain, had decided to remove its chief executive in favour of an Argentinian with virtually no experience of UK retailing.

Then came the announcement that Marks & Spencer, once the pride of domestic retailing, but now fallen on the hardest of times, had put 900 jobs at risk by axing one of its knitwear suppliers.

Last night, however, the boot was on the other foot as M&S chief executive Peter Salsbury waited to find out whether the City pension funds that own the company would force him onto the street. Things must be serious when M&S decides finally to accept credit cards in its stores.

The events are closely connected. British retailing is heading for the new millennium in a parlous state. The value of some of the most famous names in British shopping, notably Sainsbury and Marks & Spencer, has plummeted. Slumping sales and intense competition have forced retailers to cut prices even when it means cutting their own throats. The spectre of Wal-Mart, the American giant which recently took over Asda, haunts retailers from Torquay to Tobermory.

It all sounds like great news for consumers, particularly as an investigation by the Competition Commission, formerly the Monopolies and Mergers Commission, threatens to erode the supermarkets' profit margins even further.

The main reason for this High Street woe is a seismic shift in the balance of power between consumer and retailer. Once, companies like Sainsbury had a captive audience of shoppers either unable, because of distance, or unwilling, because of loyalty, to shop anywhere else.

However, the boom in advertising, the explosion of new shops and the near-universal ownership of cars mean that consumers have the knowledge and the means to find the bargains. Internet shopping has also empowered the consumer with the ability instantly to compare prices.

Richard Hyman of the retail consultancy Verdict says: "There has been a massive increase in footage in supermarkets that could be traced back 15 years or so ago. That has coincided with changing demographics. The population is getting older and old people do not spend so much in shops."

And the stakes are about to be raised by the arrival of Wal-Mart. Its £6.7bn purchase of Asda - a drop in the ocean for a company with annual sales of £85bn - may so far have had little tangible impact, but the competition is running scared. After all, Carlos Cridao-Perez, the philosophy-reading Argentinian who last week took the hot-seat at Safeway, is a former Wal-Mart executive.

American critics accuse it of deliberately putting rivals out of business in order to secure local monopolies, so it is little wonder that the smaller supermarkets such as Safeway and Somerfield are running scared. Its enormous size enables Wal-Mart to undercut rivals by securing cheap deals with suppliers - this is a company which buys more soap powder and washing-up liquid from Procter & Gamble than the whole of Japan. It also sells an enormous range of products, so even specialists such as Dixons and Boots are vulnerable.

Angry investors who have seen the value of their shareholdings plummet have been demanding their pound of flesh from those retailers unable to match the leviathans of Wal-Mart and Tesco. Hence the outbreak of bloodletting, first at Sainsbury - where last month chief executive Dino Adriano was sidelined - and now at Safeway.

"Shoppers want quality or value or both," says Mike Godliman of retail consultancy Verdict. "Asda and Tesco will do well and so will those at the quality end but companies like M&S are caught in no-man's land."

If it all seems to point to an apocalyptic future of gigantic, out-of-town one-stop shops leaving a trail of destruction in Britain's once bustling high streets, don't despair. There are those like Verdict's Richard Hyman who have a sense of déjà vu.

"It's no different to the early part of the century when Woolworth first came to Britain. Smaller shops must have thought it was going to be the end of the world. Look at Woolworth now."