J Sainsbury has reported a small rise in H1 profits, helped by its store refurbishment program. Like-for-like sales are up 6% in Sainsbury’s UK stores, its third consecutive period of strong growth. Although it’s worth noting the figures are compared to a very poor H1 2000, the retailer seems to be turning its fortunes around. Plans to make better use of information mined from its loyalty card scheme in setting stock levels should help this process.
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It’s been six months since Sainsbury started its three-year plan to refit its stores and tempt back its gradually diminishing customer base. It may be working.
Pre-tax profit before exceptionals for H1 was GBP309 million, up from GBP300 million last year. Like-for-like UK sales excluding petrol grew by 6%, making it the third consecutive quarter of good sales growth and the strongest growth period for a decade, and customer numbers were up by a similar level. Admittedly, these are compared with an unusually weak showing in 2000.
The program includes the refitting of 120 stores this year and improving support systems. So far the group has completed 54 store refurbishments and extensions. Sales have already shown a marked improvement at the 13 stores remodeled in Q1, rising by 10% on average. Sales in the first five weeks of H2 have also apparently been encouraging, although Sainsbury does not plan to give specific details until after Christmas.
Sainsbury, overtaken by Tesco as UK market leader in 1995, is taking pains to catch up with its rival’s advances in store formats. As part of the refitting program, Sainsbury plans to develop more flexible stores. This will let it use information gathered through loyalty cards showing differences in trade make-up between stores in apparently similar demographic regions.
Following in the footsteps of rivals such as Wal-Mart, Sainsbury plans to cater for the needs of customer ‘clusters’ to alter levels of stock to reflect local tastes and requirements. Two of the new-style stores will be opened this week. If successful, the project will be extended to more stores in the UK.
While prices are important, recent price wars have taught UK supermarkets that discounts are not necessarily the best way to get loyal customers. For Sainsbury to continue its positive trend, it needs to have an up-to-date and customized product offering. It has lost out in the past through complacency and slow adaptation, but finally seems to be getting its priorities right.
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