‘From automation to home working, Sainsbury’s changes highlight forces shaping retail’

The grocer intends to rationalise its network of general merchandise distribution centres, including the closure of two, and to spend £90m on the automation of the Daventry depot.

Sainsbury’s will also shut its Milton Keynes office – the former Argos HQ – and shift the emphasis of its Habitat business to online with the closure of three remaining showrooms.

From automation to working from home, Sainsbury’s changes show forces shaping retail.

The depot changes are similar to others being made across the industry. While interest in technological innovations has been high in retail for years as a digital shift wrought massive change to how consumers shopped and interacted with retailers, much of what is happening at the retail coalface now is more prosaic such as efficiency improvements through automation – less ChatGPT than elbow grease 2.0.

The reasons are obvious. Retailers are seeking to keep down costs in ways that will not be noticed by shoppers and a shift to more automation was stimulated too by issues such as warehouse staffing difficulties in the aftermath of the pandemic. 

The trend to automation is evident at Next, which has been a pioneer. The fashion giant’s ongoing investment in its Elmsall 3 distribution centre exemplifies the benefits that can be won.

Next reported last year in its interim results: “Elmsall 3 will deliver an estimated increase in boxed capacity of 50%, with marginal labour cost per unit around 40% lower than the equivalent cost today, once the site automation is fully operational.”

As Sainsbury’s automates, expect other retailers to follow suit as costs and investment are balanced. Decisions will be informed by hard financial calculations and practical business impact rather than chasing the latest tech crazes.

“As Sainsbury’s automates, expect other retailers to follow suit as costs and investment are balanced”

The second big theme highlighted in Sainsbury’s initiatives is the continued impact on retail offices of working at home. Sainsbury’s decision to shut the Milton Keynes office – staff will be given the option of working elsewhere, no jobs are being lost as a result – reflected the fact that “on average only 11% of available desk space is regularly used by colleagues”. The closure will enable JS to save on operating costs and “reinvest the money where it can have a greater impact for customers”. 

Many retailers are still grappling with the impact of working from home. Amazon chief executive Andy Jassy for instance has just ordered a return to the office. He wants employees to spend at least three days a week there and argued in his memo informing them of the plan that he believed offices are better for learning, building a team culture and collaboration than working remotely is.

Some retail chief executives may agree with Jassy – and unlike him, those with shops also face the impact of changed trading patterns in areas once dominated by commuters – but he sounds like King Canute.

Almost three years on from the first pandemic lockdown in the UK, new working habits are clearly ingrained among many people. Sainsbury’s decision to close the Milton Keynes office probably reflects reality far more than Jassy’s wishful thinking. Retailers, like other companies, will have to find new ways of creating traditional office benefits.

The final point that Sainsbury’s announcement epitomises is the need, across retail, to find efficiencies and improve productivity as many costs remain high. Sainsbury’s own programme, of which this week’s changes are part, is not called ‘Save to Invest’ for nothing. 

As Sainsbury’s put it, the Daventry investment will help deliver “a reduction of stock, more responsive delivery to customers and stores, and a simpler delivery process for suppliers”.

The intention is “to deliver a step change in efficiency by transforming its approach to costs, simplifying its organisation and delivering a structural reduction in its operating cost base”.

By controlling and lowering costs, Sainsbury’’s can then “invest where it will make the most impact for our customers”. That will be a common goal across retail in the months and years to come.

The investment side of the equation is vital. It is rare for a business to be able to cost cut its way to long-term success. The retailers that get the balance right will be the winners, while those that don’t ultimately risk there being nothing left to cut and are on a spiral of doom.