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

The Daily Telegraph - Business - - Front Page - By Laura Onita

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

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