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Walmart’s ASDA may lose sales over contract scandal

Analysts say Asda needs to consolidate as a standalone business as it considers a demerger from Walmart

Walmart Inc - Walmart’s ASDA may lose sales over contract scandal
Asda's like-for-like sales were down 0.5% in the third quarter

Walmart Inc’s (NYSE:WMT) British food retailer Asda reported a better quarterly performance than its peers, although it faces potential sales losses over the vital Christmas period after a reputational hurdle.

Over the summer, the grocery chain told its 120,000 workers paid by the hour they would get the sack if they refused to sign a new “flexible” contract, which required them to work over bank holidays and to accept unpaid breaks.

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Protests and boycott threats spread out over the imposition, which the company justified as a way to remain competitive in a challenging market.

“While Tesco and Sainsbury’s have both started to heavily leverage their established British heritage (both are using birthdays this year as an excuse to lower prices) to combat the discounters, Asda has instead become embroiled in an ugly and public contract debacle,” said Thomas Brereton, analyst at GlobalData, in a note.

Analysts say Asda needs to consolidate as a standalone business as it looks to leave the American mothership, with the stock market launch envisaged for 2021/22.

Many consider it Walmart’s “plan B” to get rid of the group after the UK competition watchdog thwarted a merger with J Sainsbury PLC (LON:SBRY) earlier this year.

According to GlobalData, Asda can thrive with its “effective” physical network and “strong” online business, although it should consider establishing convenience stores to tap into a fast-growing channel of the market.

In the three months to 30 September, the supermarket chain posted a 0.5% decline in like-for-like sales excluding petrol, adding to the pool of UK retailers feeling the widespread consumer uncertainty.

Analysts at GlobalData pointed out it was still the best figure among the “Big Four” UK grocery retailers -comprising Sainsbury’s, Tesco PLC (LON:TSCO) and Wm Morrison Supermarkets PLC (LON:MRW) - which reported a 0.7% dip on average.

Asda's online grocery sales had “strong” numbers, reporting two times the growth of the overall market, Walmart’s chief executive Doug McMillon said in a release.

Walmart’s shares were up 2% to US$123 on Thursday morning.

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