Walmart’s UK job cuts show how Asda fell behind

London - Slumping sales at Walmart's Asda supermarket chain have been accompanied by thousands of job cuts that analysts say may help explain the UK grocer’s declining fortunes.

The average number of workers in Asda’s retail and distribution facilities fell by 5% to 107 740 in 2015, according to company accounts filed this week. That’s even as the chain opened 37 new stores. 

Following the cuts, Asda’s sales have progressively worsened. Same-store revenue - a key barometer of a retailer’s performance - tumbled a record 7.5% in the second quarter of this year.

“Taking out service has backfired,” said Andrew Gwynn, an analyst at Exane BNP Paribas in London. “Walmart’s staff cuts have effectively made Asda a poor supermarket.”

The UK is a rare black spot for Wal-Mart at a time when CEO Doug McMillon is making progress with efforts to lower prices and improve customer service. The growth of discounters Aldi and Lidl has eroded Asda’s position as the UK’s cheapest grocer and sparked a price war.

In July, Walmart parachuted in Sean Clarke, then head of its Chinese business, to take the helm in an effort to stem the sales drop.

Last year’s headcount reduction was mainly due to the grocer not replacing some workers when they left, a spokeswoman said by email. The contraction is in contrast to the company’s main rivals. Market leader Tesco cut more staff on shop floors, helping its sales to stabilize as Asda’s worsened.

Recent comments from Walmart executives haven’t pointed to any change in the grocer’s approach. McMillon said last month that measures to boost Asda’s sales will include better availability of products and even lower prices. He also spoke of reducing costs, without addressing staffing.

“They need to invest in service and invest in their people,” said Richard Hyman, an independent retail analyst. “If sales keep falling, profits will inevitably follow.”

Profit at the 624-store chain rose about 9% to £512m in 2015, the accounts show.

Fixing the UK business isn’t the sole international focus for Walmart, which generates $125bn of sales outside the US, or about 26% of the group total. China remains a high priority, with the company estimating that 25% of global retail growth will come from that country alone in the next five years.

Asda’s traditional reliance on low prices is also counting against it at a time when customers have more money in their pockets and are seeking more than just the cheap food they can get at the discounters. According to the grocer’s own income tracker, British families have 5.4% more disposable income than they did a year ago. 

“People are now willing to spend a bit more for a more pleasurable shopping experience,” said Charles Allen, an analyst at Bloomberg Intelligence.

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