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Monday, June 14, 1999 Published at 13:29 GMT 14:29 UK

Business: The Company File

Wal-Mart's bargain for consumers

Suddenly this name carries an even greater threat for UK retailers

If you thought a cut price pair of designer jeans at your local supermarket was good - you ain't seen nothing yet.

The world's largest retailer, Wal-Mart, prefers to sell an entire high street's worth of goods at discount rates.

[ image: Wal-Mart founder Sam Walton]
Wal-Mart founder Sam Walton
That is why its proposed takeover of supermarket chain Asda will be good news for UK shoppers.

Wal-Mart's philosophy is to take a comprehensive range of goods, pile 'em high and then sell 'em cheap.

Spine tingling

The result is that its stores tend to be the size of aircraft hangars.

They also appear irresistible to shoppers who can pick up a computer, wardrobe, shirt and groceries on the one visit.

But while the sheer range of goods on offer may cheer consumers, it will send a shiver down the spine of store keepers on high streets and retail parks across the UK.

The impact of Wal-Mart's arrival can not be over-stated.

"Nothing will be the same again," said retail analyst Michael Godliman, director of Verdict Research.

"Wal-Mart sells everything, so they are a potential threat to all retailers."

"It is probably the nightmare coming true. Retailers over here are scared of Wal-Mart," said another analyst.

[ image: UK high streets are likely to face a shake up]
UK high streets are likely to face a shake up
"They're scared of its size - which is beyond the experience of everyone else."

There is no doubt that Wal-Mart's scale is unparalleled in the retail industry world-wide.

A combination of the top six UK retailers - Tesco, Marks & Spencer, Kingfisher, Boots, J Sainsbury and Dixons Group - would not even be half Wal-Mart's size.

The 'value' end

The £6.7bn cost of the Asda deal represents only about 5% of the group's market value.

Wal-Mart's involvement should help Asda secure better terms from suppliers, which it is likely to pass on to customers in the form of cheaper prices.

Good news again for shoppers but bad for competitors.

Many UK retailers may now look for merger partners in order to enhance their own competitive positions.

Some believe that Tesco and Sainsbury may have less to fear than some others.

"Tesco and Sainsbury have quite sophisticated shoppers who are looking for quality and the correct type of environment," said Mr Godliman.

"Wal-Mart concentrates more on the value end," he added.

This means that the lower end of the UK supermarket sector, such as KwikSave, Netto and Aldi, are more likely to lose out, he said.

But food is just one part of the Wal-Mart product range and the chances are that other retailers such as Dixons or B&Q will find their markets being attacked.

Double whammy

On the face of it the biggest loser will be Kingfisher, the owner of Woolworth's in the UK, which has effectively been gazumped having already agreed a deal with Asda.

Analysts see it unlikely that Kingfisher will be able to make a counter offer to Wal-Mart's bid.

Within minutes of the news of Wal-Mart's swoop emerging, speculation was already growing that Tesco may now be on Kingfisher's shopping list.

Kingfisher planned to combine Asda's food and clothing with its electricals and home improvement chains in the UK and continental Europe to build a global hypermarket business, to rival the likes of Wal-Mart and France's Carrefour.

Not only does it appear to have been foiled on that front but it also now has to combat the competitive threat of Wal-Mart in its home market as well.

Wal-Mart's move may be a boon for shoppers and bad news for most UK retailers, but it is a double whammy for Kingfisher.

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