Taking Stock

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Research Report: Lidl Traffic Slipping; Discounter Makes Key Management Change Affecting U.S.

If you’ve scouted more than a handful of the nearly 40 Lidls that have opened in Virginia, North Carolina, South Carolina, Georgia and Middletown, DE you would notice that many of the discounter’s stores have seen some significant volume dips a few weeks after opening.

That observation was substantiated by location-based data firm inMarket.

Perhaps not so coincidentally was a change that the German retailer made at its corporate headquarters late last month when it named Michael Aranda, former CEO of Lidl Spain to oversee U.S. operations from the company’s Neckarsulm base. Aranda, who has been with Lidl for 17 years, replaces Daniel Marasch. Current Lidl U.S chief executive Brendan Proctor will report to Aranda.

According to the German business magazine Lebensmittel Zeitung, sales in the U.S have been “frighteningly weak,” also noting that “Lidl wants to combat its U.S. problems by instituting a more disciplined approach to operations here.” Proctor, who once headed Lidl’s Irish operation, has been the president of Lidl-U.S. since March 2016.

In a related piece that appeared in the Wall Street Journal, the neophytic merchant said it may be considering tweaks to format and merchandising mix.

We have visited more than a dozen stores multiple times, and have observed a wide swing in sales (approximately $175-$300K weekly). Departments such as wine and bakery have continued to be consistently strong, and Lidl’s pricing structure remains aggressive. However, certain perishable areas – meat, seafood and some produce – appear sub-par and we viewed its general merchandise offering to be disappointing considering the amount of space has Lidl devoted to it.

Certainly the company has plenty of time (and plenty of dineros at its disposal) to correct its early flaws. It’s going full-tilt with its expansion plans and will soon be opening stores in new markets such as Ohio and Texas. It will also build a fourth distribution center in Cartersville, GA in 2018. Between now and next June, expect about 60 more Lidls to debut, with a lot of that activity occurring in New Jersey, Pennsylvania, Delaware and Maryland once its Cecil County, MD warehouse opens early next year.

However, I am concerned about whether the large European company can correct what I believe were fundamental mistakes made before it opened its first store, along with its ability to adjust to current market realities.

Acquiring all of its initial real estate seems like a poor decision. Not only was that an exceedingly costly choice, I would estimate that about 25 percent of its sites seem to be in secondary or tertiary locations. As one of my industry real estate friends offered: “It seemed that having a presence in a specific city or town was more important that the specific site itself.”

As far as market adjustments go, Lidl opted to go with a significant European presence at its U.S. headquarters in Arlington, VA. Not that a group of Irish, German and Dutch executives wouldn’t  be capable of making the right decisions, but as another of my industry cohorts, who spent his entire 35-year career at retail, noted: “Who’s going to call an audible when they need to change the play quickly?” he said. “It would be the same issue if I were heading up a company in Europe. There’s something to be said for local knowledge, experience and instinct. Even on a one-on-one store comparison, they’re behind Aldi which has a proven track record about how to build sales in the extreme value segment and obviously has lots more traction than Lidl has.”

Hey, it’s early – we’ll revisit this subject in a few months, but one thing is already clear: throwing money at the problem won’t prove to be a successful fix.