Comment: Tesco must learn that size is not everything

Terry Murden. Picture: TSPL
Terry Murden. Picture: TSPL
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THE worst kept secret in retailing was finally confirmed yesterday when Tesco pulled down the shutters on its American adventure and admitted it had cost the supermarket chain a shedload of money.

There will be no banker-style baying for blood, even for Sir Terry Leahy, the former boss and architect of the strategy, despite the first fall in full-year group profits for two decades, down 52 per cent to £1.96 billion after a series of hefty property writedowns and slowing sales growth.

This is a mess of its own making and current chief executive Philip Clarke has been trying to find a buyer for the Fresh & Easy chain after conceding that this is the latest in a long line of failed moves by British companies into the US. Closure had been on the cards since Clarke announced the business was under review and it will not be pretty. Some 4,000 US staff face redundancy and Tesco will have to unravel a network of supplier and distribution contracts as well as facing up to a stain on its reputation.

On top of that, the UK business is yet to return to growth in a changing consumer environment. Online shopping is making the big shed strategy less sustainable – heralding the end of the so-called “space race” – and already the company is acquiring other businesses, such as the Giraffe restaurant chain, to turn the vast grocery and merchandise halls into retail destinations akin to mini shopping malls that provide a mix of dining and leisure.

Tesco’s mistake in the US was to adopt the wrong model, one based on scale and price rather than customer service.

At home its belated move to refresh its unwelcoming stores was not helped by the horsemeat scandal.

On the positive side, the balance sheet remains strong, debt is falling, and the group will focus capital expenditure on those areas of the business that will generate better returns.

Tesco is big enough and strong enough to ride out this storm and the market is confident that Clarke has grown into the role. But it has been taught a lesson that size is not everything.

Scots economy rising, but work to be done

IT IS often said that businesses should not talk themselves into a recession. On the basis of the latest GDP figures, maybe we in Scotland are all a little guilty of being too gloomy.

A rise in output in the fourth quarter against a fall for the UK as a whole is encouraging and suggests some underlying strengths that we ought to be building upon. Unemployment figures also published yesterday show the number of jobless is below 200,000 for the first time since 2009. The news from ScottishPower that it is creating 2,500 engineering jobs, albeit over ten years, is another indication that companies are planning for growth.

There is understandable caution, however. Performance is patchy with some sectors clearly continuing to struggle, and no-one is claiming that life is a bed of roses. Try telling young people languishing on the dole, or small firms working on the tightest of margins, that the economy is improving, although Scotland again outperforms the UK on youth unemployment.

Business lobby groups rightly warn against complacency and urge the government to maintain policies that encourage competitiveness.

At least for now, though, there is hope that Scotland is digging its way out of the worst slump in a generation and heading in the right direction.