ASSET SALES, BUILDING SALES NEEDED FOR A TURNAROUND

David Merrefield

It often happens that when a retailer gets into dire financial straits, the solution that springs to mind is to sell off underperforming assets and plow the proceeds into shoring up a group of stores that's doing well. If that works, it may then be possible to shed all unproductive stores and reinvent as a new entity.

Regrettably, that strategy doesn't work very often. In many instances, action starts too late for a group of viable stores to remain, and the underperforming assets have been neglected for so long that they have little or no value.

Moreover, even if capital is produced by asset sales, it ends up being burned by ongoing operations. When that money is gone, there's no direction left to go.

Perhaps these are some of the reasons the beleaguered A&P Co. is trying a slightly different approach, one that involves selling the crown jewels. As has been widely expected for some time, A&P acknowledged last week that it would endeavor to sell its profitable 235-store Canadian division -- and dispose of its less glittering fleet of 101 Farmer Jack stores in the Midwest -- so the company can focus on operations in its core territory, the Northeast.

Should all this transpire, A&P will be reduced from a company that now operates 650 stores producing a top line of nearly $12 billion to one with 352 stores that generates about half that revenue. See Page 1.

Christian Haub, A&P's top officer, told SN's Jon Springer last week that selling assets makes sense for A&P only because format conversions -- based on fresh and discount merchandising -- have taken root well in the Northeast. So, the resulting revenue can be invested, not used for a purpose no more noble than to postpone an inexorable fate. Let's hope so. Revenue produced could be as much as $1 billion, or more. That would support a lot of store redirection, but there's little room for error.

Wall Street liked the plan. A&P's stock soared more than 23% to a 52-week high the day it was made known. Let's also hope the sale proceeds as planned, since the equity downside could be equally large if the sale doesn't materialize. Loblaw doesn't plan to bid; Metro and Sobeys may.

CLUBBING SALES

Now on to a smaller form of building sales. On Page 51, you'll see a news feature about seafood clubs, some of which are using e-mail and Internet sites as operational platforms.

There are many different ways to run such a club. Here's one way: Some retailers are asking interested shoppers to sign up for an e-mail broadcast, which is used to inform them of recipes, cooking classes, product availability and sale prices. Some require shoppers to order product online to benefit from the sale price, then come into the store to pick it up. One operator mentioned in the article said discounts of 20% are offered to shoppers who order online and agree to come to the store to pick up the order.

And, on top of that, the system brings shoppers into the store who wouldn't be there otherwise. Those shoppers become an added source of impulse buying.

"One way [to build seafood sales] is to educate people," one retailer told SN. "Seafood is so simple to deal with, yet [consumers] are so afraid to deal with it." That's what the club concept is all about.