Asda, the Leeds-based supermarket giant, is embarking on a significant £568 million property sell-off in a bid to raise capital, a strategy unveiled as the retailer grapples with persistent falling sales and a declining market share.
A Sign of Weakness in a Tough Market
The plan involves selling 24 stores and a distribution centre, only to lease them back immediately. This sale-and-leaseback manoeuvre has been labelled a "sign of weakness" by industry experts, coming at a time when the supermarket's performance is under intense scrutiny. According to data from Worldpanel by Numerator, sales fell by 3.9% in the three months leading to 2 November, accompanied by a one percentage point drop in market share compared to the previous year.
Clive Black, a retail analyst at Shore Capital, did not mince words. "From the outside it looks like a sign of weakness that tangible fixed assets are being sold at this time," he stated. He warned that while the deal could help pay down debt or free up capital for investment, it would also lead to higher rent costs, thereby squeezing the cash available for day-to-day operations.
Turnaround Plan Fails to Gain Traction
This financial move casts a shadow over the turnaround strategy presented in March by Asda's chair, Allan Leighton. His plan promised to stir the market with aggressive price cuts to win back customers. However, this offensive does not appear to have hit home. Patrick O'Brien, an analyst at GlobalData, noted, "There was a feeling that Asda were really going to bring out the big guns and we haven't really seen that materialise. We have not seen that aggressiveness on price as yet."
The challenges run deep. Asda's parent group slumped to a near-£600 million loss last year, driven by falling sales and the increasing cost of servicing its substantial debt pile. This debt was largely accrued during the highly leveraged £6.8 billion takeover in 2020 by the Issa brothers and the private equity firm TDR Capital, which now controls the group.
Concerns Over Debt and Future Stability
The decision has raised alarms among unions and credit analysts alike. Nadine Houghton, a national officer for the GMB union, expressed grave concerns: "Asda’s owners, TDR Capital, is selling off yet more assets to settle the debt liabilities heaped on the business by its own borrowing. Debt is up, lease liabilities are up, interest payments are up – but market share and staff morale are rock bottom."
Furthermore, Armarveer Singh, a credit analyst at CreditSights, indicated that the deal would negatively impact Asda's credit rating. The proceeds are not being directed towards business investment or reducing the core debt, but rather to pay off a debt to Walmart, the previous owner which still holds a 10% stake. This follows previous asset sales, including a £1.7 billion warehouse sell-off in 2021 and a £650 million sale of 25 supermarkets two years later.
Despite the turmoil, an Asda spokesperson defended the strategy: "Asda’s property strategy is centred on maintaining a strong freehold base while also taking a considered and selective approach to unlocking value from our estate where appropriate. These transactions reflect that approach, enabling us to realise value from the sites while retaining full operational control." The stores involved in the latest deal have been sold to DTZ Investors and Blue Owl Capital.
