This month saw the opening of London’s latest department store. But this wasn’t the latest offering from John Lewis or House of Fraser. This was the latest venture from ‘big four’ grocery chain Sainsbury’s.
Located just metres from the future Northern Line underground station at Nine Elms, the store is the first to boast an Argos outlet and a Mini Habitat following the retailer’s acquisition of Home Retail Group last month.
It also features the first Sainsbury’s Foodhall, as well as a Sainsbury’s Café, Starbucks, Lloyds Pharmacy, Explore Learning centre and the first Sushi Gourmet concession in the UK.
In the press release, Sainsbury’s emphasised the “department store look and feel” of the supermarket. Speaking at the opening, its chief executive Mike Coupe said the store epitomised “our vision for the Sainsbury’s supermarket of the future - a true destination store for our customers where they can get everything they need under one roof”.
So does John Lewis or House of Fraser have anything to worry about?
The announcement Sainsbury’s was introducing a new department store layout will have raised a few eyebrows among industry experts who thought that this had happened more than a decade ago. In the mid-2000s, Tesco, Asda and Sainsbury’s all started to rethink their hypermarket store formats, introducing multiple concessions and new non-food lines to what was a quasi-department-store format.
The rise of online retail has obviously made much of this space redundant, and in the past few years the ‘big four’ have scaled back their non-food offers and reduced their footprints, effectively putting an end to the space race. Even so, late last year Sainsbury’s admitted about 6% of its floorspace was still under-utilised. It has made no secret of the fact that the Home Retail Group acquisition is part of its strategy to fill the remaining void.
The big difference is, of course, the branded general merchandise concessions, Habitat and Argos, and the Foodhall, which make the store far more closely resemble a bona fide department store… not that this is the impression you get when you visit the store.
Food is still at the heart of the 61,000 sq ft Sainsbury’s. Indeed, it has a larger-than-usual range of ready-made food - sandwiches, salads, sushi and so on - conveniently located close to the entrance and the checkouts to capitalise on the commuter market. The Mini Habitat occupies a small corner close to the Sainsbury’s clothing and homeware range.
In a similarly modest corner space, diagonally opposite Habitat, is the Argos concession, which is located next to the tills and escalators to make clicking and collecting bulky items more convenient.
In short, it is almost the inverse of a normal department store where non-food concessions dominate and the food is a secondary offer.
According to one analyst, the department store description is misleading and not a tag that everyone at Sainsbury’s felt comfortable with. “I don’t think everyone likes it being called a ‘department store’,” he says. “It’s a grocery store with non-food. I’m pretty sure they don’t want to be seen as a Walmart clone, where you get absolutely everything under the sun and you happen to have food there as well. Grocery is still the main point of the stores.”
Independent retail analyst Nick Bubb agrees, adding that the presentation of the new store to the media was more about generating headlines than reflecting reality. “A year ago, Sainsbury’s did a press trip to the new-look store in Alperton [in Wembley] and made a song and dance about the new layout and in-store technologies. Then we heard nothing more about it,” he says. “So I’d take the latest PR with a pinch of salt.”
What is genuinely new is the fact that Nine Elms marks the first time the Sainsbury’s, Argos and Habitat brands have been brought together under one roof. The intention is to roll out Argos concessions to all its larger stores and Habitat to its very biggest. A Sainsbury’s spokesman says that five Habitat stores and 20 Argos shops will be open in its supermarkets by Christmas.
Eighteen of the Argos outlets will be in new stores and two will be in relocated supermarkets: one in Oldham, which has already opened, and one in Plymouth, which will open in November. The additional Habitats will be in Reading, Solihull, Epsom and St Albans stores.
Most analysts view the move as positive. However, while they see the synergies between the Sainsbury’s and Habitat brands, they are less sure about the Sainsbury’s-Argos fit. Many note that the Argos customer base is more closely aligned with Asda than Sainsbury’s.
That said, they do believe there could be significant cross-selling opportunities between the Sainsbury’s and Argos brands. A good percentage of Sainsbury’s shoppers also shop at Argos and now they will be able to do so more easily. Similarly, customers who have ordered goods online at Argos will be able to collect their goods at the concession and may elect to do some food shopping at the same time.
There is more uncertainty in the analyst community about how the Habitat strategy will play out, not least because Sainsbury’s is yet to fully brief investors on its plans, but the expectation is that Habitat stores will enable Sainsbury’s to increase its non-food offer in a similar, if more limited, way as Argos.
However, both concessions raise the question of how to deal with duplication of the existing Sainsbury’s non-food offer. Will it scale back its electrical goods, toys and homewares - all big sellers - on the shop floor?
The key will be to differentiate the offers, says one analyst. “I don’t believe it wants to have the same price points and quality in all three areas. It wants to delineate that,” he elaborates. “You don’t need to buy three different sets of towels or toasters. You can rationalise your lines and make sure the customer has whatever they need in terms of quality and price and can find it where they’re expecting it.”
Analysts agree that while some rationalisation will be required, the primary purpose of the new concessions is to bolster the pulling power of overall general merchandise.
“I don’t see it as a great revolution in terms of supermarket retailing,” says Sam Hart, Sainsbury’s watcher and equities analyst at Charles Stanley. “I think it’s just another way of it strengthening its non-food proposition. Given the intense competition in the grocery space, I think there is a rationale for doing it, but it isn’t going to be easy by any means. With the likes of Amazon out there, it is going to remain ferociously competitive.”
As well as not cannibalising its existing non-food offer, Sainsbury’s will need to take care that it isn’t seen to be sacrificing core grocery space, warn analysts. They argue that shoppers will resent any loss of choice down the food aisles.
“What they have to be very careful about is making sure they don’t add any non-food space at the expense of grocery space,” says Hart. “If customers come into a store and find that the full range that they’re used to isn’t there, and that non-food categories have taken that space, [Sainsbury’s is] kind of shooting itself in the foot.”
For its part, Sainsbury’s stresses that the new concessions offer “complementary products and services”. The spokesman adds: “The point is that we are giving customers greater convenience, flexibility and choice in store or online by bringing together the Argos, Habitat and concessions partners, for example the sushi bar at Nine Elms.”
Sainsbury’s competitors certainly seem to be worried that it might be on to something. Just last week, Tesco announced it would be checking its non-food prices against Argos on more than 8,000 product lines in a move that can hardly be viewed as coincidental.
To provide a seasonal spin, Tesco placed particular emphasis on the toys it expects to be bestsellers this Christmas (Hatchimals topped the list, in case you were wondering).
“We’ve done a lot already to serve our shoppers better, but we’re always looking to do more,” says Matt Davies, UK and Republic of Ireland chief executive at Tesco.
Echoing the words of Coupe, he adds: “We want to take the hard work out of Christmas shopping and help our customers get everything they need under one roof.”
Make that one actual, physical roof. For both Tesco and Sainsbury’s, the big elephant in the general merchandise corner is Amazon, which many analysts fear will continue to erode the grocers’ non-food market share in much the same way discounters Aldi and Lidl have eroded their grocery shares.
The big elephant in general merchandise remains Amazon
Others, however, take a bigger-picture view. “From Sainsbury’s perspective, it could lose some share in non-food to Amazon,” says one analyst. “But it’s not a winner-takes-all market. If it’s winning from Tesco and Asda, it will regard that as an achievement. I think it’s looking at this as having the broadest assortment with the biggest buying power so it has some price advantage.”
And price advantage is all, whether the fight is with old rivals Tesco and Asda, new department store chains John Lewis and House of Fraser or mighty online foe Amazon.
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