Wal-Mart forges friends friendship with Supermercados Amigo: ASDA reaps rewards for international division - Wal-Mart Stores Inc. enjoys profits, ASDA Group PLC profits - Brief Article - Statistical Data Included

DSN Retailing Today, Feb 25, 2002

LEEDS, ENGLAND -- Wal-Mart's international division produced record-setting sales and profits last year thanks largely to the continued strength of ASDA stores in the United Kingdom and the effectiveness of numerous merchandising changes put in place over the past year. ASDA was already a successful retailer when Wal-Mart acquired the chain in July 1999, but since then ASDA's stores have adopted many of Wal-Mart's merchandising strategies and have begun to produce some dramatic results.

During the 12-week period ended Jan. 6, same store sales for apparel and general merchandise increased by 30%, according to the company. Meanwhile, total sales for the recently ended fiscal year increased about 9% to $15,825 billion from $14,500 billion the previous year, according to UBS Warburg analyst Linda Kristiansen's estimates. At that level, ASDA's total sales account for 44.3% of Wal-Mart's international sales of approximately $35,700 billion.

Some of the growth can be attributed to an increased store count as ASDA ended the year with 250 units, compared to 242 the year before. However, even more significant are the gains being generated from existing stores.

"The process we are going through is making our space work harder," ASDA's deputy trading director Tony Page told DSN Retailing Today.

Toward that end, early last year ASDA created a specialty division modeled after Wal-Mart's domestic specialty division that operates pharmacy, optical, jewelry, photo and shoe departments. ASDA began the year with no jewelry departments and just six photo departments, six vision centers and 36 pharmacies. By the end of the year, there were 12 jewelry departments, 45 photo departments, 50 vision centers and 84 pharmacies. Within three years, plans call for 150 jewelry departments, 150 photo departments, 150 vision centers and 130 pharmacies.

"We are looking at all sorts of new service areas, so specialty could grow into even more than it is now," Page said.

Sales also benefited from the introduction last September of 5,000 new non-food items across a broad range of home and leisure categories. The expanded assortment of general merchandise and the creation of specialty departments are enabling ASDA to transform itself into a credible one-stop-shopping destination akin to Wal-Mart's domestic supercenters, but in a smaller box.

Apparel sales at ASDA also surged last year when the George line of apparel was expanded to include a lower-priced version of the brand called Essentially George. By yearend, Essentially George accounted for 30% of ASDA's apparel sales and the percentage of customers purchasing George apparel had increased to 20% from 13%. In classic Wal-Mart style, ASDA expects the increased volume will lead to reduced sourcing costs and more than offset reduced price points. Another goal is to shorten product development lead times.

"If you see something on the catwalk, you want it in the shops within six to eight weeks," Page said.

ASDA was able to free up space for the new specialty departments and the larger assortment of general merchandise by shrinking the space devoted to grocery. By going with smaller pack sizes and fewer facings, Page said, ASDA was able to make its stores work harder--a necessity in a country where average store sizes are considerably smaller than in the United States. Aisles also were cleared of floor displays.

"We had customers tell us, 'we love coming to your stores, but we just keep banging into merchandise,'" Page said. "If only this were a bigger country we would be all right."

Not all the departments being added take up as much space as they do in domestic Wal-Mart stores. Jewelry, for example, occupies about 200 square feet near the George apparel department. Jewelry departments in domestic supercenters can be three times that size.

The good results ASDA produced last year also can be attributed to a strong U.K. economy that didn't weaken to the same degree as the U.S. economy. Accordingly, many of ASDA's competitors also posted healthy holiday sales growth. Tesco, ASDA's archrival and the dominant retailer in the United Kingdom, reported its same store sales during the seven-week period ended Jan. 5 increased 6.2%. J. Sainsbury reported a same store sales increase of 6.8% during the six-week period ended Jan. 5, and Safeway reported a same store sales increase of 4.1% during the 12-week period ended Jan. 5.

In the next several years, ASDA is expected to be a driving force behind growth of the international division as 12 new stores are expected to open this year and general merchandise initiatives improve the productivity of existing stores. According to Page, last year's results and the changes that took place are "just the start of plenty more to come."