Supermarket giant Asda has announced a major property sell-off, planning to raise £568 million through the sale and leaseback of 24 stores and a distribution centre. This move comes as the Leeds-based retailer continues to struggle with declining sales and market share despite efforts to revitalise its business.
Mounting Pressure on Britain's Third-Largest Supermarket
Sales at Asda fell by 3.9% in the three months to 2 November, according to data from Worldpanel by Numerator, formerly known as Kantar. This decline has resulted in a one percentage point drop in market share compared to the same period last year, intensifying pressure on the chain as it battles competitors.
The retailer's parent company slumped to a near-£600 million loss last year, attributed to falling sales and increasing costs associated with servicing its substantial debt pile. This challenging financial backdrop has prompted what analysts are calling a "sign of weakness" through the latest property transaction.
Analysts Question Strategic Direction
Clive Black, a retail analyst at Shore Capital, expressed concerns about the move. "From the outside it looks like a sign of weakness that tangible fixed assets are being sold at this time," he commented. Black noted that while the deal might help Asda reduce debt or free up capital for investment, it would also lead to higher rental costs, potentially squeezing cash available for day-to-day operations.
Patrick O'Brien of GlobalData highlighted that Asda's promise in March under new chair Allan Leighton to stir up the market with aggressive price cuts has failed to materialise effectively. "There was a feeling that Asda were really going to bring out the big guns and we haven't really seen that materialise," O'Brien stated. "We have not seen that aggressiveness on price as yet."
Debt Concerns and Employee Worries
The deal forms part of Asda's ongoing strategy to manage the hefty debts accumulated since its £6.8 billion leveraged takeover in 2020 by the billionaire Issa brothers and private equity firm TDR Capital. TDR now controls the group after buying out Zuber Issa, while Mohsin Issa retains a 22% stake.
Nadine Houghton, national officer for the GMB union representing thousands of Asda workers, voiced significant concerns: "Asda's owners, TDR Capital, is selling off yet more assets to settle the debt liabilities heaped on the business by its own borrowing. Debt is up, lease liabilities are up, interest payments are up – but market share and staff morale are rock bottom."
The properties have been sold to two buyers: DTZ Investors and Blue Owl Capital. Asda, which operates 579 supermarkets, 517 Express convenience stores and 29 Asda Living outlets, will continue to trade from all the affected locations under leaseback arrangements.
This isn't the first time Asda has pursued such a strategy. The retailer previously sold most of its warehouses for £1.7 billion in 2021, followed by 25 supermarkets for £650 million two years later in similar deals. It also completed a more unusual ground rent deal for £300 million in 2023.
Armarveer Singh, a credit analyst at CreditSights, warned that the latest transaction could negatively affect Asda's credit rating as it increases leasehold exposure while the proceeds are reportedly being used to pay off debt to Walmart, the US retailer that previously owned Asda and retains a 10% stake, rather than for business investment or reducing core debts.
An Asda spokesperson defended the strategy: "Asda's property strategy is centred on maintaining a strong freehold base while also taking a considered and selective approach to unlocking value from our estate where appropriate. These transactions reflect that approach, enabling us to realise value from the sites while retaining full operational control."
