Friday, April 24, 2015

Tesco: A Massive Bleed

Tesco plunged to an annual loss of £6.38 billion on Wednesday – the worst in their 96-year history. Their trading profit was £1.4 billion, in line with company guidance but less than half of the £3.3 billion made the year before and a third straight year of decline.
 
Badly wounded by an accounting scandal and a price war sparked by the march of discount groups Aldi and Lidl, the supermarket entity wrote down the value of their business by £7 billion – in fact, the writedown was larger than forecast – to reflect restructuring charges and the lower sales their stores were making. The statutory loss, which also includes stock writedowns, is one of the biggest in British corporate history. Already ratings agencies had reduced the company to “junk” status.
 
Dave Lewis, the chief executive parachuted in to mastermind a turnaround last year, described the loss as a “big significant number”. But the former Unilever executive insisted the supermarket was on the road to recovery.
 
From my various readings, I have compiled a small list of 5 mistakes that have cost Tesco billions:
 
1. Tesco haven’t kept up with the seismic shifts in the retail landscape – They need to recognise how much the retail landscape has changed, and adapt their strategy accordingly. They’ve been focused on ‘big box cathedrals’ until now – massive, hypermarket-style superstores – but there’s been a shift towards consumers preferring to shop at local convenience stores, or online.
 
2. Tesco have lost the plot on customer service – They must become more focussed on the customer experience, and in particular the interaction with their customers in-store. Stores need to be destinations and give people a reason to return. People buy from people.
 
3. Tesco should have closed their 200 underperforming stores – you need to be ruthless.
 
4. Tesco haven’t made the best use of their bigger retail outlets – Shopping habits have changed and people now do their grocery shopping online or at a smaller store, and Tesco have a number of larger stores that are costing a fortune. So a key priority for Tesco has to be making better use of these bigger stores. One option is to sub-let floor space to other retail brands, but Tesco could also look to use the space to better connect online and offline.
 
5. Tesco must embrace technology more – The opportunity for Tesco – and indeed all retailers – is to reimagine how their businesses work digitally. It shouldn’t be a thing that happens “online” – it should be a service layer that unites a customer experience, smooth’s out the buying process, and allows personalised benefits. With an epic database, they should look at how this data be turned into a tool for enhancing the customer experience, rather than targeting offers. After all, people’s shopping habits are changing; we are buying less stuff, more often. Why not take the evolution of shopping further with a recurring monthly fee that covers a regular drop off of staples to your door: a 21st Century Milkman. This commitment would allow better forecasting and the cost saving could be passed onto the customer.

Tesco have gone stale – it is as simple as that.

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