Under-pressure Tesco boss Philip Clarke is next week expected to unveil evidence that new ideas being tried out at its big-box Extra stores are starting to bear fruit.
Clarke will highlight the improvements as he bids to defend his strategy and fight back against critics.
Clarke, who has come under renewed pressure in the last few days amid falling sales and the resignation of long-standing finance director Laurie McIlwee, is expected by analysts to show that Tesco’s Extra refits are starting to make a difference. Some of the trials include a revamped general merchandise offer and new elements such as Harris + Hoole cafes.
The Extra revamps are a key part of the grocer’s strategy to ‘Build a Better Tesco’. The shift to online and convenience shopping has dented sales at big-box stores, where Tesco is more exposed than its competitors. Over the Christmas trading period, Tesco reported online sales up 10% and like-for-like sales up 1% at its Express convenience stores while its Extra business recorded a 3.1% like-for-like decline.
Clarke is expected to provide different examples from a number of Extra stores as evidence of confidence in his strategy. He is also likely to reiterate Tesco’s need to accelerate the strategy, not change it.
Next Wednesday Tesco is expected to reveal a fall in full-year group trading profit from £3.45bn to £3.24bn. House broker Deutsche Bank said it is “too early” to expect changes to the UK operation to have fully impacted the business but expected “more activity to come”.
John Kershaw, analyst at Exane BNP Paribas, said: “Tesco’s aggressive Extra refurbishment programme should bolster sales and profits, particularly into 2015/16 when 50% of the Extra store estate will have been refurbished.”
However, Oriel Securities analyst Jonathan Pritchard argued Tesco’s UK problems are “worsening not improving”. He feared the retailer’s strategy amounted to “fiddling while Rome burns” and urged management “not to die wondering”.
Pritchard said: “Unless strategy changes dramatically, there seems little prospect of a bounce back to form for Tesco UK”. He said the grocer needs “something to truly differentiate Tesco from the pack”.
Figures this week from Kantar Worldpanel revealed the extent of the challenge facing Clarke. The grocer’s sales over the past 12 weeks to March 30 were down 3%, a decline exceeded only by Morrisons.
Shore Capital analyst Clive Black said the departure of McIlwee, who resigned last week after 15 years at the retailer, is “symptomatic of a business that is not at ease with itself, united in its direction and comfortable within its own skin”.
He added: “Those cultural traits are reflected in the operational performance of Tesco, most notably in the UK, its core market, where it has been sustainably and materially under-performing. Tesco needs to be at ease with its strategy and direction, united and comfortable, with the right people executing its plans.”