(Bloomberg) -- Slumping sales at Wal-Mart Stores Inc.’s Asda supermarket chain have been accompanied by thousands of job cuts that analysts say may help explain the U.K. grocer’s declining fortunes.
The average number of workers in Asda’s retail and distribution facilities fell by 5 percent to 107,740 in 2015, according to company accounts filed this week. That’s even as the chain opened 37 new stores. Following the cuts, Asda’s sales have progressively worsened. Same-store revenue -- a key barometer of a retailer’s performance -- tumbled a record 7.5 percent in the second quarter of this year.
“Taking out service has backfired,” said Andrew Gwynn, an analyst at Exane BNP Paribas in London. “Wal-Mart’s staff cuts have effectively made Asda a poor supermarket.”
The U.K. is a rare black spot for Wal-Mart at a time when Chief Executive Officer Doug McMillon is making progress with efforts to lower prices and improve customer service. The growth of discounters Aldi and Lidl has eroded Asda’s position as the U.K.’s cheapest grocer and sparked a price war. In July, Wal-Mart parachuted in Sean Clarke, then head of its Chinese business, to take the helm in an effort to stem the sales drop.
Last year’s headcount reduction was mainly due to the grocer not replacing some workers when they left, a spokeswoman said by e-mail. The contraction is in contrast to the company’s main rivals. Market leader Tesco Plc put more staff on shop floors, helping its sales to stabilize as Asda’s worsened.
Asda announced a range of price cuts and quality improvements on its own brand products Friday. The grocer is lowering prices by an average of 15 percent across several meat and fish lines, as well as other popular products such as tomato ketchup and basmati rice. Wal-Mart’s McMillon recently said Asda will also seek to keep cutting costs, which would make a hiring spree unlikely.
“They need to invest in service and invest in their people,” said Richard Hyman, an independent retail analyst. “If sales keep falling, profits will inevitably follow.”
Profit at the 624-store chain rose about 9 percent to 512 million pounds ($682 million) in 2015, the accounts show.
Fixing the U.K. business isn’t the sole international focus for Wal-Mart, which generates $125 billion of sales outside the U.S., or about 26 percent of the group total. China remains a high priority, with the company estimating that 25 percent of global retail growth will come from that country alone in the next five years.
Asda’s traditional reliance on low prices is also counting against it at a time when customers have more money in their pockets and are seeking more than just the cheap food they can get at the discounters. According to the grocer’s own income tracker, British families have 5.4 percent more disposable income than they did a year ago.
“People are now willing to spend a bit more for a more pleasurable shopping experience,” said Charles Allen, an analyst at Bloomberg Intelligence.