Sainsbury’s plans to buy a majority stake in rival supermarket Asda is set to create UK’s largest grocery group with 31.4% market share, and one of the biggest general merchandise groups, with combined revenue of £51bn. Drapers investigates what the proposed merger could mean for the UK clothing market.
Following the announcement on Monday, Sainsbury’s CEO Mike Coupe said the merger – if approved – will create a “dynamic new player in the retail market”. He confirmed Sainsbury’s clothing brand Tu and Asda’s George will remain separate.
Both are significant players in the clothing market: Asda ranks fifth by value with 3.5% market share and Sainsbury’s 15th with 2.1%, according to Global Data.
Industry observers have told Drapers the takeover would lead to an “inevitable” consolidation of Tu’s and George’s supplier base, and many question whether the two labels are distinct enough to successfully co-exist.
There is no doubt it will lead to the consolidation of the supplier base of both parties
Mamequa Boafo, Global Data senior analyst
“There is no doubt it will lead to the consolidation of the supplier base of both parties,” said Global Data senior analyst Mamequa Boafo. “It will assist in leveraging margins across both businesses. However, there are questions about how the Tu and George brands will be organised once the deal goes through, and how the retailers will maintain their differentiation.”
Another industry source was sceptical about whether the brands would operationally remain separate: “Today those brands offer different things, but tomorrow there will be opportunities for cost synergies. There are too many overlaps. If the deal does get done, the more time they co-exist, the more time there is for one to weaken.”
Mary Anderson-Ford, managing director of recruitment consultancy Aqua Retail, agreed: “One would imagine that head offices will merge, which will have a huge impact on the teams. Should the brands be combined, there will inevitably be duplicate roles, leading to redundancies. Ramifications like this will rear up from all sorts of angles as the details of this merger emerge.”
Should the brands be combined, there will inevitably be duplicate roles, leading to redundancies
Mary Anderson-Ford, managing director of recruitment consultancy Aqua Retail
While any store closures demanded by the Competition and Markets Authority (CMA) could impact clothing market share, Kantar Consulting senior analyst Derya Yildiz said there was potential to increase the space given to fashion through cross-selling in certain shops: “There will be Argos in Asda, why not Tu in Asda? If George is selling well [in Asda], why not bring in Tu? We all shop around, so why would we see them as any different?”
She added that other retailers may need to reassess their strategies as a result of the merger: “Primark may consider having concessions in other supermarkets. Next and Arcadia have trialled this with Tesco. Right now, there’s a big change in the industry and retailers will be experimenting to see how things work out.”
There will be Argos in Asda, why not Tu in Asda? If George is selling well [in Asda], why not bring in Tu?
Kantar Consulting senior analyst Derya Yildiz
Retail analyst Richard Hyman said the new company will create “a much bigger” competitor to Primark, as Tu and George were “just a few percentage points” behind the value fashion retailer: “Primark has built an unassailable position, but this combined deal would put somebody very close in its backyard.”
He added that the high street’s other biggest names will also be looking over their shoulders: “It shines a light on Next and M&S. They have been mistakenly chasing prices down, which is devaluing their product literally and metaphorically. They haven’t got enough confidence in their ability to add value. [This deal] will affect them and it shouldn’t.
“Tu has been really well developed in recent years. It will be starting to eat into [sales at] Next and M&S because there isn’t enough market. In a market that is flat, if you’re not a growing brand, you’ve got to take growth from somewhere else.”