News broke earlier this week of Tesco’s reported £6.4bn losses – not only the worst result in the store’s 96-year history, but also historically the biggest ever loss suffered by a UK retailer.
A fall in property value of Tesco’s UK-based stores accounted for the majority of these losses, and has been attributed to a decline in footfall in many of the larger out-of-town hypermarkets. Tesco’s Chief Executive Dave Lewis has warned that food retail remains a “challenging” market, and that despite some hints of improving sales, the store’s performance would undoubtedly remain unpredictable for the foreseeable future.
In an industry where non-food sales remain somewhat stronger than food (for the three months December‘14 to February‘15, non-food sales were up 2.2% at a total level and food sales 1.2% like-for-like), and where larger format supermarket stores are under increasing pressure to reinvent and rejuvenate, could Tesco’s non-food offering help to play an increasingly important role in the brand’s strategy in the coming months and years?
Sainsbury’s are already taking the bull by the horns on this front, unveiling plans earlier this month to convert 1.5m sq ft of retail space – the equivalent of nearly 40 supermarkets – from grocery sales space to space dedicated solely to its non-food ranges, in a bid to fight back against falling grocery sales. Indeed, some industry commentators see the reinvention of larger format stores as one of the key trends to watch over the next few years, and argue that as shoppers increasingly embrace multichannel shopping, using more store formats to buy their groceries, larger stores will need to evolve to rebuild their appeal in light of the growth of discounter, convenience and online channels. Focusing on non-food products that people want at larger stores, such as clothing and homeware, is one such way of doing this.
Recent Populus research supports this idea, with consumers demonstrating considerable interest in purchasing non-food items at supermarkets. A significant majority (85%) of Brits say they would consider purchasing their underwear from a supermarket, and nearly eight in ten would also consider purchasing across DIY (78%) and Accessories (77%) categories. Even big ticket items such as household white goods are of marked interest to consumers when available at supermarket locations (69%).
Notably, it is younger consumers aged 25-44, and those in lower social grades C2 and DE, who are the most likely to consider buying in each of these non-food categories at a supermarket, hinting that the low cost often associated with supermarket non-food items is a key factor at play in their appeal.
Indeed, when it comes to sartorial supermarket purchases, it is the usually well-priced kids clothing and school uniform that top the list of clothing categories that Brits are most likely to consider purchasing alongside their weekly shop (respectively 69% and 60% of respondents with children aged 18 and under say they are likely to consider buying from these categories in the next 12 months). Adult casual clothing comes a close third in terms of popular clothing items to buy at the supermarket (55%), and around a third of British adults are similarly likely to purchase clothes for work (36%), shoes (34%) and swimwear (30%). However, just one in six (16%) would consider themselves likely to buy jewellery alongside their groceries over the coming year.
Tesco is the first to acknowledge that it needs to markedly improve its competitiveness if it is to move forward from recent events. Alongside making significant reductions in its range of groceries (reducing the current range of 90,000 products by 30%) in an attempt to cut costs, there is a sizeable opportunity for supermarkets like Tesco to follow Sainsbury’s in reinvigorating their larger store formats and emphasising what they can do that the discounters yet can’t. Whilst food discounters Aldi and Lidl have a virtually unrivalled capability to offer consumers the cheapest groceries on the market, supermarkets still perhaps have two things on their side: size, and the unique capacity to respond to demonstrable market interest and offer a considerable breadth of non-food ranges.