Tesco: Clarke’s £1bn turnaround in doubt

Tesco boss Philip Clarke’s £1 billion plan to reinvigorate the supermarket giant’s fortunes was brought into question today as he revealed a fresh slide in quarterly sales.

Tesco: Fresh sales dip. Picture: Neil Hanna/TSPL
Tesco: Fresh sales dip. Picture: Neil Hanna/TSPL

Clarke – the group’s chief executive since March 2011 – blamed a 1.5 per cent fall in core UK like-for-like sales on the weak grocery market. The chain is coming under increasing pressure from discount grocers such as Aldi and Lidl, as well as upmarket rivals Marks & Spencer and Waitrose.

It is also battling against tough conditions in its international markets, with underlying sales sharply lower in Thailand, South Korea and Ireland during the three months to 23 November.

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The decline in UK sales came after a flat performance in the previous three months, and industry watchers said Clarke, who took over from Sir Terry Leahy in the top post, was facing difficult questions over his strategy.

John Ibbotson, director of retail consultant Retail Vision, said: “It looked like Philip Clarke’s £1bn turnaround plan was beginning to work but today’s 1.5 per cent fall in UK like-for-like sales will call this into question. This, together with declining sales in key overseas markets, will put Clarke and his senior management team under threat.”

Clarke said consumers were having to deal with “an unprecedented period of declining real incomes and a higher cost of living”, as average spending power is now about 10 per cent lower than its peak in 2007.

He added: “The actions we have taken to position the business for the future – including the work currently under way to transform our general merchandise offer and our decision to significantly reduce the amount of new space we open – are also holding back our sales performance in the short-term.”

However, he said efforts to increase online sales remained a “strategic priority” and would be supported by its Hudl tablet computer, with more than 300,000 sold since its September launch.

Clarke also insisted the group was performing in line with market expectations for the full year, which point to a trading profit about £3.4bn.

Despite the pressure coming from either end of the retail spectrum, Sainsbury’s last month delivered its 35th consecutive quarterly rise in sales and posted a 9 per cent hike in first-half profits to £433 million on the back of strong demand for its own-brand food.

Richard Hunter, head of equities at Hargreaves Lansdown, acknowledged “progress is being made” at Tesco and the UK’s largest grocer is already reaping the benefits of an uplift in sales at more than 100 stores that have been revamped.

However, Joe Rundle, head of trading at ETX Capital, said: “It’s been 18 months or so since Tesco announced it will invest £1bn to revitalise the UK business, which led to an exodus out of global operations such as the US.

“Since, Tesco has been unable to deliver on earnings, which has led to disappointment for investors who are now doubting the company’s ability to turn around.”

Having already admitted defeat in Japan and the US, Tesco recently signed a deal that will see its 134 loss-making Chinese stores swallowed by state-controlled China Resources Enterprise (CRE). The tie-up, expected to be completed in the first half of next year, will create a combined business with sales approaching £10bn.

The retailer also said today that sales at Tesco Bank grew 0.9 per cent in the third quarter, and the Edinburgh-based operation remained on track to launch its current account in the first half of next year.