TESCO is to abandon plans to create 100 new UK stores after confirming it will axe its US chain as profits slumped for the first time in more than 20 years.
Britain’s biggest retailer –which has recently diversified into restaurant, cafe and car maintenance businesses – said it is to focus on revamps, convenience stores and improved delivery to online customers following a write-off of £804 million on land and property earmarked for new stores.
It is also to scrap its Fresh & Easy brand on the west coast of America, where it is closing 199 shops opened there since the chain’s launch six years ago.
Tesco reported a full-year profit figure of £1.96 billion yesterday – almost half that of last year – amid increased competition for market share from the likes of Asda and Sainsbury’s.
Chief executive Philip Clarke said Tesco the move would leave it with a large amount of land. He said: “The large stores we have are great and we are doing a lot of work to make them more vibrant and relevant for today’s customers, but we won’t need many more of them because growth in future will be multi-channel: a combination of big stores, local convenience stores and online.”
An aggressive strategy of securing a large land bank for development helped the chain grow rapidly in the 1990s and early 2000s, but the recession, and the move to online retailing, has meant demand for giant superstores has waned.
The brand has diversified beyond supermarkets, including the acquisition of Dobbies Garden Centres in 2010; a recent partnership with Black Circles – a car tyre firm with former Tesco boss Sir Terry Leahy among its shareholders; and family-friendly restaurant chain Giraffe, which it bought last month for £50m.
Rival Asda has already unveiled plans to share parts of its larger stores with other retailers, creating what it described as “mini high streets indoors”.
Leigh Sparks, professor of retail studies at the University of Stirling, said Tesco would concentrate on online sales, which rose by 13 per cent. “One of the shining lights of Tesco’s figures was the increase in online sales,” he said. “They are also looking to revamp existing stores.”
Tesco last year announced plans to spend £1bn to add more staff – particularly in fresh food departments – and improve the experience for customers.
“I suspect much of the money they spend will go into smaller stores,” added Prof Sparks. “They are having to invest a lot to capture back the market share. ”
While still holding on to the largest share of the market – with one in every £8 spent in the UK spent in its stores – Tesco has become embroiled in price wars with with the introduction of at-checkout discount vouchers and has also suffered from the horsemeat scandal, which forced it to withdraw four of its products.