As the discounters Lidl and Aldi continue to reshape the UK retail landscape, Sainsbury’s (LSE: SBRY) is trying to fight back by slashing prices.
Unfortunately, in order to cut prices without sacrificing profits, the company is having to cut costs.
And as part of the group’s plan to save £500m over the next three years, it has been announced today that the group is planning to cut 800 jobs in its stores. This announcement follows the group’s decision to cut 500 head office jobs in January. Management has stated that the job cuts won’t affect the customer experience, although the cuts will reduce the number of staff in stores late at night.
Sainsbury’s management believes that the change to staffing levels won’t put customers off the retailer. However, there are some signs that customers are turning their back on the company after it made changes to the way its Nectar card reward scheme works.
Nectar changes
From 11 April, Nectar card users will only receive one point for every £1 spent in stores, compared to the previous scheme of two points for every pound.
Looking at the initial reactions to these changes, a large number of customers have been put off shopping at Sainsbury’s. Moreover, some shoppers have decided to desert the retailer in favour of the discounters, where they can buy more for less.
Initial indications
Of course, these are only initial reactions and the official figures may show that customers have not decided to desert Sainsbury’s at all.
Figures from Kantar Worldpanel show that Sainsbury’s grew its sales by 0.2% in the 12 weeks to March 29. However, the changes to the Nectar card programme did not come into force until nearly two weeks after these figures were published.
But even if Sainsbury’s sales growth does continue, the company is likely to issue a wave of bad news over the next 12 months. Indeed, Tesco’s recent set of results, and record-breaking loss, brought to light the many pressures UK retailers are now facing.
For example, just like Tesco, Sainsbury’s could be forced to write down the value of its supermarkets and take a number of one-off charges brought on by restructuring costs.
Foolish summary
So, as Sainsbury’s tries to cut costs and fight back against the discounters, initial indications show that some customers are planning to turn their back on the retailer. And it’s becoming clear that Sainsbury’s management need to come up with some radical new ideas to draw customers back into the company’s stores.
