At first glance, you might think that the decision by J Sainsbury (LSE: SBRY) to convert shop space into selling non-food items is a fresh and healthy move.
With its grocery sales continuing to fall, surely it makes sense to move into potentially more productive items?
You might think that, but I’m afraid it leaves a nasty taste in my mouth.
Trouble In Store
This is the type of thing that big companies do when they have lost faith in what they do. So it is yet another sign of the crisis in confidence afflicting the grocery sector, if you needed more signs.
But it’s worse than that. Sainsbury’s is pursuing a strategy that has been tried before, and deemed to have failed.
In its conquer-the-world days, Tesco (LSE: TSCO) was stuffing its warehouse stores with home electronics, toys, kitchenware, clothing, books, DVDs, you name it.
And when it discovered that it couldn’t compete with Amazon on price and convenience, it pulled the plug.
That was hailed as Tesco returning to what it does best: delivering quality food at low prices.
So how do we respond to Sainsbury’s now doing the reverse?
Tried And Failed
Being kind, I can see some sense in the strategy. Sainsbury’s has to do something about falling grocery sales. It has tried edging upmarket, with its Taste the Difference range, then downmarket, through its Netto tie-up.
Its Price Match pledge foundered on competition from the discounters and price cutting at Asda and Morrisons. Web sales have underwhelmed. Convenience stores have only cannibalised superstore business.
Game Over
At least Sainsbury’s will be selling its own-brand non-food products, such as kitchenware and homeware, so that makes some sense.
But subletting space to retailers such an Argos and Jessops looks like giving up the fight altogether.
I guess they have to do something with all that unproductive floor space, which is about 25% “underutilised”.
But having failed to beat off the threat from Aldi and Lidl, I can’t understand its decision to take on Amazon.
Tesco lost the battle of the behemoths. What makes Sainsbury’s think it can win?
The Luxury Gap
It also smacks of desperation. As does the decision to sell off new developments in London to build luxury flats, above or next to its supermarkets.
That is a perfectly sensible way to bring in cash, even if the prime London boom is now fading. It is also another admission that the core business can no longer be relied upon to deliver the goods.
The new ways look like a quick fix to me. One that Tesco has tried before, and dropped.