Sainsbury’s has outlined a massive shake-up that will see it close up to 125 Argos stores and supermarkets but open a greater number of outlets as it looks to slash costs.
The retail giant said it planned to shut up to 70 Argos shops and open around 80 instead within its supermarkets, while it also plans to close up to 15 large supermarkets and as many as 40 convenience stores.
But it also aims to open about ten big stores and some 110 convenience outlets under the sweeping overhaul, which it insisted will increase its overall store estate.
The five-year plan, which is being led by chief executive Mike Coupe, is set to cut costs by some £500 million over the next five years and comes after the failure of proposed multi-billion-pound merger with rival Asda.
Sainsbury’s also revealed narrowed sales declines in its second quarter, but warned over a £50m hit to underlying half-year profits. It blamed the interim profits warning on the impact of cost cutting, with weather and higher marketing costs also taking their toll, though it stuck by full-year forecasts.
The group also announced its financial services arm, which is based out of Edinburgh, would stop new mortgage lending “immediately” as part of its five-year plan.
It comes amid reports the group is looking to sell off its mortgage book, following rival Tesco’s recent move to offload its home lending business.
Details of the plans came as Sainsbury’s announced a 0.2 per cent dip in like-for-like sales, excluding fuel, over its second quarter to 21 September. This marked an improvement on the 1.6 per cent fall seen in the previous three months.
The firm said like-for-like grocery sales rose by 0.6 per cent in the second quarter, but this was offset by a 2 per cent drop in general merchandise sales, which includes the Argos business.
Coupe said: “Sales momentum was stronger in all areas and we further improved our performance relative to our competitors, particularly in grocery.
“Argos continued to grow market share in key categories, but sales were impacted by reduced promotional activity and the timing of new product releases in gaming and toys.”
Richard Hunter, head of markets at Interactive Investor, said: “The strategic review will need careful management.
“In a notoriously competitive sector and as seen in the past on numerous occasions, rivals move on rapidly, which can leave a company in the midst of a transformation behind.
“A combination of factors will also harm underlying first-half pre-tax profit to the tune of £50m, although full-year guidance remains intact. The phasing of cost savings, higher marketing costs, poor weather and stronger comparatives have contributed to a fairly flat overall performance for the period.
“With Asda out of the strategic equation, the hard work now begins in reshaping the Sainsbury offering, both in terms of financial streamlining as well as maintaining market share, margin and of course profit.”
He added: “The share price has had a chequered time of late.”