Tate & Lyle
Carst and Walker
Fresh & Easy

The shape of new Tesco emerges from ashes of US failure

Tesco, Britain’s biggest retailer, has reported its first fall in profits since the early 1990s, down 51.5% to £1.96 billion after a series of hefty property writedowns and slowing sales growth, and confirmed that it’s pulling out of its US chain of 199 Fresh & Easy shops at a cost more than £1,2bn.

Tesco insists its UK turnaround plans were on track as it said it saw its best like-for-like sales growth for three years in its final quarter, although the 0.5% rise marked a slowdown on the 1.8% surge seen during Christmas trading.

The decision marks the end of the supermarket “space race” as it scraps more than 100 major store developments and admits future growth would be focused more online.

The UK’s biggest supermarket says the days of snapping up land and building major stores that led to its success in the 1990s were now behind it as customers increasingly shop over the internet.

Tesco has also revealed a £1.2 billion hit from its failed foray in America, confirming plans to offload its Fresh & Easy business in the US were “well advanced” with interest from buyers for all or parts of the business.

The US exit has left it nursing a £1.2 billion impact to its bottom line, with post-tax profits plummeting by 95.7% to £120 million. On an underlying basis, pre-tax profits fell 14.5% to £3.5 billion.

Panmure Gordon retail expert Philip Dorgan says Tesco’s store development u-turn was a “welcome shift in strategy”.

“The space race is over. The digital race is on,” he adds.

Tesco’s plans will largely see big Tesco Extra developments pulled, although the group did not reveal which sites would be affected.

Philip Clarke, chief executive at Tesco, says: “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 multichannel – a combination of big stores, local convenience stores and online.”

He says the financial impact of the group’s decision was as a result of land being bought at the height of the property boom more than five or 10 years ago. “That is before the 2008 financial crisis, before the iPhone, social media, tablet computers, before we knew how profoundly technology would change both how we and our customers live and shop,” he adds.

The group reduced store expansion by 40% in the year to the end of February, but opened 120 Tesco Express and 26 One Stop outlets and said it plans to continue focusing new space on convenience stores over the year ahead.

It comes as a marked change in direction from a decade ago, when supermarkets were accused of land grabbing and racing to increase their footprint with ever larger stores – a trend that coined the phrase Tesco Town.

Internet shopping has since had a significant impact on the grocery sector, with many customers shunning stores to shop in the comfort of their own homes.

Tesco said online sales reached the £3 billion milestone after rising 13% in the year to February 23.

In an effort to keep customers coming to its stores, Clarke is taking steps to improve the shopping trip through brand relaunches, store makeovers and hiring more staff.

Tesco also last month bought the 47-store Giraffe child-friendly restaurant chain for £48.6 million under plans to open the eateries alongside larger stores and transform them into family-friendly retail destinations…..

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