Sainsbury Plans Argos Restructuring in Midst of Pandemic

(Bloomberg) --

U.K. retailer J Sainsbury Plc is closing 420 Argos stores and starting a massive job restructuring plan in the midst of the pandemic in a bid to boost its profitability.

The U.K.’s second-largest grocer said Thursday it plans to cut as many as 3,500 positions, though job losses should be limited as it also creates 6,000 new roles. It’s shutting most of its standalone Argos stores and instead is adding counters or collection points at every Sainsbury’s location to integrate the electricals and houseware chain it bought in 2016. The stock fell as much as 4.4% Thursday morning.

Argos and its other businesses and brands “must deliver in their own right and actively support our ambition in food,” Sainsbury said.

The company is following the path of larger rival Tesco Plc, which announced plans to cut 4,500 jobs in August. U.K. retailers are struggling to deal with price competition from German discounters Lidl and Aldi, as well as higher costs related to the pandemic. Marks & Spencer Group Plc earlier this year announced at least 7,000 jobs were at risk across its food and clothing and home divisions.

The job cuts also reflect plans to close fresh meat and fish counters in stores, a step Tesco also took previously at some of its supermarkets.

New roles to be created will be in the faster growing parts of Sainsbury’s business, such as its online division where there are requirements for more van and truck drivers and “store pickers” who gather items ordered online. Usdaw, the shopworkers’ trade union, said it has entered into consultation with Sainsbury over the proposed 3,500 job cuts and is “confident” of securing redeployment for the vast majority of staff. In previous shutdowns of Argos standalone stores, Sainsbury retained 90% of the staff.

The grocer will book a 438 million-pound ($570 million) charge as a result of the restructuring. Excluding that, pretax earnings should rise at least 5% on an underlying basis this fiscal year, the grocer forecast. The following year should be even better, according to Sainsbury’s guidance.

The retailer has benefited from a significant surge in food sales both in stores and online. Consumer fears of catching coronavirus in supermarkets has driven demand for shopping online. Retail sales excluding fuel rose by 6.9% in the first half on a comparable basis, beating market expectations.

Sainsbury has had to absorb about 290 million pounds of costs to run its stores safely. The costs have have been partially offset by government relief on a property-linked tax. It expects the costs of safety measures in its stores and warehouses could be well in excess of 460 million pounds by the end of the fiscal year.

The company said it’s paying an interim dividend and a special payment in lieu of the final dividend it delayed earlier this year.

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