My previous Blog was written before Monday morning’s formal announcement with more detail. Now that we know much more, my initial thinking remains. This deal tells us much about the underlying thinking at all the companies involved. And behind the spin, most of that thinking is negative.
It is clear that this is an exit for Wal-Mart, albeit initially a partial one. The terms of the deal involve a very low value for Asda as a trading company. In effect, a dowry has been given to JS. For Wal-Mart to remain partners long term would require them to have massive confidence in Sainsbury’s leadership team to make this rescue deal transformational. This is not plausible. Beyond the next few years it makes me wonder at what point those separate brand identities will merge the operational management supporting them. Surely the economic advantages will become irresistible? The pressures will grow since I find it hard to see how the enlarged group will gain any share, albeit from a higher starting point. So the need to cut costs will intensify.
The strategic thinking here is defensive. However, it seems to me to be financially driven in its thinking. The classical view that greater scale is desirable was behind the acquisition of Argos, and again here. Both Argos and Asda are essentially weak brands. Putting Argos into Asda certainly boosts scale, but the proposition will remain the biggest target in Amazon’s sights. Scale will always be significant in retail but its value is diminishing. Across the industry, all the innovation, disruption and fastest growth has come from smaller, more agile, more dynamic players – Aldi and Lidl in food, B&M and Home Bargains in GM, Primark in apparel. It misses the point to look at that list and say …ahhh, all discounters. Yes, they are. But more than that, each is a brilliant retailer with outstanding commercial skills.
In the retail market now emerging, scale alone wont cut it. Understanding customers (this means much more than simply owning mountains of data) is the critical prerequisite of being commercial. Too many retailers are not commercial enough, something unaffected by being bigger.
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