Supermarket chain ASDA saw its sales take a 4.7% hit in the second quarter as the “worst storm in retail history” shakes the UK retail sector. One reason for the drop? Rises in current and projected labour costs.
The Leeds-based company, which employs 160,000 staff, warned that it would take a hit of “a few tens of millions” from the Cameron government’s introduction of a new national living wage from next April.
ASDA, owned by US retail giant Wal-Mart for the past 16 years, has been battling Sainbury’s for second place in the UK grocery market share. Last month it lost the number two spot to Sainsbury’s for only the third time in 12 years. Aldi and Lidl currently control 5.6 per cent and 4 per cent of the UK grocery market respectively.
The latest industry data from Kantar Worldpanel and supplied via Sky News showed that ASDA’s sales fell 2.7 per cent in the 12 weeks to July 19 compared with a year ago, giving it a market share of 16.4 per cent and its worst quarterly report ever.
ASDA’s poor performance was blamed by its parent company as a key factor behind falling profits and a decision to slash its earnings guidance for the year. Currency headwinds and a decision to raise pay and increase worker hours in a drive to improve customer service were also blamed for worse-than-expected earnings.
Alex Russo, ASDA’s chief financial officer, told investors in a conference call that profit was flat in the quarter and the cost of future pay rises was likely to push prices even higher.
Shares in Wal-Mart, which last month surrendered the crown of world’s biggest retailer to Amazon, slipped by 3.1 per cent on Wall Street as first-quarter profit fell 15 per cent to $3.48 billion. They are down 16 per cent this year.
In George Osborne’s July budget, the Chancellor announced the introduction of a National Living Wage (NLW), which is a premium above the National Minimum Wage (NMW) for workers aged 25 and over. The NMW is to remain in place and the adult rate will increase to £6.70 per hour on 1 October 2015.
The first NLW premium will be 50p per hour and will be introduced in April 2016, thus increasing the total NLW to £7.20 per hour from that date. The NLW is projected to increase to £9 per hour by 2020. This is linked to changes to working tax credits and a pledge to increase the income tax-free personal allowance to £12,500 by 2020.