High street faces fresh battle for survival

The growing stranglehold of the big supermarkets on the non-food retail market was laid bare yesterday by DVD sales volume data seen by The Independent. Both Asda and Tesco now sell more DVDs than the entertainment specialist HMV, according to TNS Worldpanel. Asda grabbed top spot with a 16.9 per cent share of the DVD market, ahead of Tesco's 16.3 per cent and HMV's 15.9 per cent for the 12 weeks to 24 May.

DVDs are just one aspect of the supermarkets' relentless non-food expansion over the past decade. UK grocers grew their non-food sales by 6 per cent to £11bn in 2008, according to the industry body IGD.

For some non-food retailers, competing against the financial might of Tesco and Wal-Mart-owned Asda is, at best, challenging and, at worst, incredibly difficult. While Woolworths had been struggling for years, the onslaught from the big supermarkets in the noughties certainly contributed to nudging it into a grave earlier this year just shy of its 100th birthday. This week, the British Retail Consortium revealed that 40 per cent of stores are vacant in some towns, as it launched its campaign to "rescue" the high street.

When the burgeoning services from telecoms to banking are added into the mix, the theory is that the big grocers pose a mortal threat to the future of the high street. But the reality is more complex. Over the last decade, the big supermarkets have transformed their non-food offerings, much of which is now online, and pure-play internet retailers, such as Amazon, have grabbed huge volumes of high street sales. The grocers are also among the few retailers filling shops that would otherwise be boarded up during the recession.

Asda has moved decisively to mop up sales left behind after the collapse of Woolworths, the variety store group, and Zavvi, the entertainment retailer formerly called Virgin Megastores. Fergal Gara, Asda's category director for music, video and games, said the grocer had benefited from the "fallout" of the two businesses and it had been "very proactive in going after" those sales. "One in six entertainment products are now sold in Asda stores and last year it was closer to one in eight," said Mr Gara.

Asda intends to grab an additional £100m of entertainment product sales this year that are up for grabs after the collapse of Woolies and Zavvi. "We don't plan to expand the amount of products on the shop floor, but we plan to make it [entertainment offer] more seasonally relevant," he said. He strongly denies that big supermarkets are bad for competition on the high street, citing that the biggest shift in the entertainment market over the past decade has been the huge growth of the e-tailers. Brian McBride, the UK managing director of Amazon, said net sales in the UK were in line with the 16 per cent growth its international division posted for the second-quarter ended 30 June. The scale of Amazon's UK offer is huge. Since launching downloads for MP3s last December, the site now offers 8 million tracks; 30,000 different styles of shoes; and lists 10 million books. Mr McBride says of the supermarkets: "They will pile it high and sell it cheap, and they do it very well. But we are the place where you get anything you want."

For the property sector, the grocers have provided a healthy revenue stream by continuing to open new stores during what has been a painful recession for landlords. In fact, nearly all the big grocers, including Tesco, Asda, Sainsbury's, Waitrose, Morrisons, as well as the discounters, have unveiled aggressive expansion plans for 2009.

Martin Crossley, the retail partner at the property specialist King Sturge, says: "The supermarkets and discount foodstores such as Aldi and Lidl account for quite a lot of the transactional activity in the property market right now. The race for space among the food stores is huge in a soft property market. The difference with the last recession is that only Tesco was land banking at the time, but now everyone is trying to make sure they don't get left behind."

Robert Clark, the senior partner at Retail Knowledge Bank, says there are several reasons why the UK high street will survive and there will not be a huge migration of non-food retailing to out-of-town parks. Unlike the US, he explains there is far less space in Britain for vast hypermarkets. Furthermore, the competition authorities would block any attempt by Tesco, in particular, to make an acquisition of any scale.

In some ways, the supermarkets and other retailers have moved with the times, while others have not. HMV, for example, has tackled the long-term decline in physical CD and DVD sales by selling a greater proportion of computer games and consoles. Mr Clark said: "In retail you do have to keep evolving."