Comment: Tesco clean sweep will make City smile

Martin Flanagan. Picture: Fiona Hanson/PA
Martin Flanagan. Picture: Fiona Hanson/PA
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NEW Tesco boss Dave Lewis sometimes talks like a marketing manual, but he certainly does not let business tropes and buzzwords delay action.

The veritable blizzard of announcements accompanying the supermarket giant’s latest trading update last week showed a man in a hurry.

Just months into the job, Lewis has unveiled substantive changes to a retailer that has lost its way in recent years amid serial profit warnings, management upheaval and an accounting scandal being investigated by the Serious Fraud Office.

Deep breath: a £250 million cost-cutting programme involving closure of Tesco’s Cheshunt head office, 43 loss-making UK stores to be closed, nearly 50 planned big store openings (including eight in Scotland) to be scrapped, significant redundancies, capital spending to be halved to £1bn in 2015/2016, the final salary pension scheme binned, a new head of the group’s UK business announced, the sale of Tesco’s broadband service Blinkbox to TalkTalk and investment bankers appointed to consider a sale or flotation of Dunnhumby, the data subsidiary behind Clubcard. Talk about easily identified items in the bagging area!

And Lewis, who was parachuted in to replace the hapless Phil Clarke only last September, was not just promising restructuring jam tomorrow.

Tesco’s accompanying trading update showed evidence that its UK sales slump may be levelling out. Same-floorspace sales fell just 0.3 per cent over the Christmas period, while a fall of 2.9 per cent in the 19 weeks to early January was much improved on the 5.4 per cent fall in the second quarter.

When a failing major business needs turning around by a new corporate broom you normally don’t see much at the consumer rockface for at least 18 months or so while change trickles down. Ask Marc Bolland, presiding over a still unsatisfactory Marks & Spencer clothing division, who took the reins from Stuart Rose four-and-a-half years ago.

It does not mean Tesco is out of the woods. What now looks to have been overseas over-reach in the blessed Sir Terry Leahy’s tenure, followed by a sense of drift under Clarke, showed a retail icon that had mislaid its UK identity, almost taking the home patch for granted That problem has not gone away. But Lewis has sent a clear message to investors that he is about fundamental change, not fiddling at the margins.

We might be witnessing the first glimmers of a virtuous circle in the company’s relations with the City. If shopfloor sales improve, or at least the scale of sales falls continues to reduce, it will buy the ex-Unilever new man the time to reshape the company into a more formidable force.

I believe that will include Lewis rowing back on some of Leahy’s foreign expansion at some stage, but well short of just making the group a purely UK operation. Good start, though.