Asda brings back door marshals and puts Covid-proof coating on shopping trolleys
With buyout firms circling, the supermarket must be careful not to follow Debenhams and effectively sign its own death warrant
ASDA is restoring shop floor marshals and applying a Covid-proof coating on trolleys to fight a second virus wave.
The UK’s third largest supermarket will put 1,000 staff outside stores and in the aisles of larger outlets to reiterate the need to wear a face covering and maintain social distancing.
It is also applying a protective coating to all baskets and trolley handles in a bid to help prevent the spread of the virus.
The shield was used at the NHS Nightingale hospital at the Excel centre in east London earlier this year built at
the peak of the crisis. Asda staff will have to wear a face mask, which was not previously mandatory. Customers who do not have one can buy a disposable mask as they enter the store. Anthony Hemmerdinger, Asda’s operating chief, said: “We know safety remains a key priority for our customers and we will continue to do all we can to keep them and our colleagues safe in store, as we have since the start of the pandemic.”
The move comes after smaller rival Morrisons also reinstated door marshals in stores to monitor and observe social distancing measures.
The UK’s major supermarkets have stressed they had plenty of capacity both online and in store and have not seen any signs of bulk buying as images of shelves stripped of toilet roll began to circulate on social media.
If I worked for Asda or was one of its suppliers, I’d be pretty worried right now. On Tuesday, The Daily Telegraph broke the news that the private equity firm Lone Star had dropped out of the £6.5bn race to buy the UK supermarket from its US parent Walmart. This leaves Apollo, another private equity firm, in pole position to snap it up. A change of ownership is always a source of concern. And the question I’d be asking myself as an Asda employee is this: why are these private equity firms so keen to own a UK supermarket?
Is it because they think they have the wherewithal to run a grocer in the most hyperefficient and ultra-competitive food retail sector in the world? Maybe they believe they have more industry nous than Walmart and have spotted something that the US retailing behemoth has not? Perhaps they have figured out a way to help Asda to leapfrog Sainsbury’s and Tesco for market share in the midst of a pandemic that has placed supply chains under acute stress.
Maybe. But there’s another possibility.
The story of UK retail over the past few years is also the story of UK property. And Asda has an unusually high number of large freehold sites. This is the kind of thing that can make the dollar signs flash in the eyes of buyout executives. They start doing complex sums on whether those freeholds could be used as collateral for loans or sold off and then leased back to the company.
Private equity gets a bad press. But really there are two types of private equity investment. These investors can take badly run businesses, restructure them away from the glare of public markets and turn their fortunes around or they can snap up perfectly good businesses, load them up with debt and break them down for parts. In other words they can add value through better management or they can extract value through so-called “financial engineering”.
Of course, we don’t yet know what Apollo’s plans are for Asda. But we can look for clues. One of these might lie in the fact that it has appointed Rob Templeman to advise on its bid. He was the man who ran Debenhams during the years when it was owned by private equity.
To refresh your memory, Templeman and his private equity backers won a long battle to buy Debenhams in 2003 and then relisted it on the stock market in 2006. This worked out very well for the private equity investors – CVC Capital Partners, TPG Capital and Merrill Lynch Private Equity – who tripled their £600m investment. It didn’t work out so well for Debenhams, which issued three profit warnings in the 12 months after it refloated. That, unfortunately, was only the start of a long, sad decline. In April this year, Debenhams fell into administration for the second time in a year.
Not all of Debenhams’ woes can be placed at the door of the private equity companies that owned it for just three years in the 2000s. But it certainly didn’t help. Many of their attempts to increase efficiency actually ended up severely hampering a business that was, up to that point, a mainstay of the British high street.
This included raising £1.1bn of debt to pay for Debenhams and then quickly shifting it on to the retailer’s balance sheet. The owners then refinanced those loans with bonds and took the opportunity to pay themselves a £130m dividend after just a few months.
They also doubled the amount of time Debenhams took to pay suppliers, turning them into unsuspecting creditors. And they cut costs to the quick. That meant the stores, in which it is holding almost constant sales (in order to shift stock and boost cash flow), started to look increasingly tired.
Then, in 2005, they sold off 23 of Debenhams’ store freeholds – including those in prime locations such as Oxford Street, Manchester, Cardiff and Chester – for £495m. What did Debenhams do with the money it raised? It went on an expansion drive, which included buying the Allders department chain out of administration.
Despite selling off its shops to British Land, Debenhams needed them, of course, to, you know, sell stuff. So it leased them back for 30 years (and 35 years in the case of the Oxford Street and Manchester stores).
It has been clear for several years now that high rents have hampered the ability of retailers to retain flexibility and adapt as shoppers increasingly look to make purchases online rather than in stores.
How much better would Debenhams have fared if it had been its own landlord during this tumultuous period for the high street? Is it too much of an exaggeration to say that, by agreeing to that sale and lease back agreement, Debenhams effectively signed its own death warrant?
Perhaps Templeman has learnt from these mistakes and is advising Apollo on what not to do with Asda. The grocer’s staff will be hoping so. But if Apollo does buy Asda, if those properties are sold and leased back to the company, and if the grocer is then relisted, investors would be well advised to shop elsewhere.
‘Perhaps Rob Templeman is advising Apollo on what not to do with Asda’
Ben Marlow is away