Tesco plans £1bn revitalisation
Wednesday 18 April 2012
Supermarket giant Tesco is to pump £1 billion into revitalising its business after conceding its UK stores were jaded and under-staffed.
Chief executive Philip Clarke said the retailer must raise its game as he unveiled plans to recruit an extra 8,000 staff, overhaul stores and put on more special offers.
Significantly, the chain will slow the pace of expansion as it focuses on "improving the shopping trip" for customers at its 2,800 stores.
The strategy follows a recent profits warning - its first in 20 years - and a sharp slump in its share price as the City worries that Tesco's dominance seen over the last decade is about to end.
Shares rose slightly today but are still down 18 per cent since its grim post-Christmas update saw £5 billion wiped from its value in a single day.
Philip Dorgan, a retail analyst at Panmure Gordon stockbrokers, said the plan looked coherent but warned that its success depended on Tesco "doing 1,000 things 1 per cent better".
Himanshu Pal, senior Tesco analyst at retail insight business Kantar, added that Mr Clarke faced a daunting challenge but that his strategy was likely to help the market leader get back on track.
However, he said: "Those expecting an overnight recovery will be disappointed. It only takes one shopping trip to disappoint a customer, but it takes much longer to change perceptions and regain shoppers' trust."
With its share of the grocery market below 30 per cent for the first time since 2005, Tesco said today that its UK profits fell 1 per cent to £2.5 billion in the year to February 25. However, strong growth in areas such as Asia helped overall profits rise to £3.9 billion.
Mr Clarke said: "Whilst our international business is delivering excellent growth, contributing £1.1 billion of profit to the group, we fully recognise that we need to raise our game in the UK.
"As we improve the shopping trip for our customers, it will follow that our sales growth and financial performance will improve too."
Mr Clarke's turnaround plan follows criticism that the UK business has been deprived of investment because of the need to fund Tesco's overseas expansion, leaving its stores cold, clinical and understaffed.
With Tesco's focus now shifting to upgrading its existing stores, the amount of new space being opened will slow by 38 per cent.
UK like-for-like sales excluding fuel and VAT were down 1.6 per cent in the final quarter of Tesco's financial year in a slight improvement on the 2.3 per cent fall over Christmas after the group handed out more money-off vouchers.
Underlying UK sales of clothes, electrical items and other general merchandise were down 3.9 per cent over the year and the group said improving this section of its business was a priority.
Tesco's plans will see it spend £200 million on extra staff and improving levels of service after a trial in 200 stores delivered a 1.1 per cent sales boost.
Liverpudlian Mr Clarke, who started his career stacking shelves in Tesco, said the retailer has stepped up the pace of revamping its existing stores to give them warmer colours, better lighting and more attractive signage.
Tesco admitted that its £500 million Big Price Drop launched last year failed to impress customers but will revamp the initiative to focus more on giving customers special offers and money-off coupons.
Other improvements will include a "complete relaunch" of the Tesco own-brand ranges and a £150 million investment in its website to allow it to better compete with online specialists such as Amazon.
It will add a further 700 click-and-collect pick-up points to its stores over the next year, almost doubling the number available.
However, Mr Clarke rejected calls to exit its banking arm and loss-making US division to focus on core UK operations.
Its Fresh & Easy business in the US racked up further losses of £153 million, an improvement of 17 per cent on a year earlier. But Tesco, which previously hoped it would break even by the end of the current year, warned this process will take longer after it scaled back expansion plans.
Tesco Bank's bottom-line profits rose 29 per cent to £203 million and it said it expects faster growth this year when it will launch mortgages.
The group's overall profits were underpinned by a buoyant performance in Asia where profits were up 22 per cent to £737 million, although it warned that high inflation and the slower economy in China may impact future growth.
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