Dave Lewis will replace Philip Clarke at Tesco this October after the firm registered its worst trading performance in forty years.

Dave Lewis will replace Philip Clarke at Tesco this October after the firm registered its worst trading performance in forty years. Filling the boots of Sir Terry Leahy was always going to be tough. In his 14 years as CEO of Tesco he oversaw grocery market share growth from 20% to over 30% while foreign acquisitions transformed Tesco into a global player. In 1997, when Leahy became CEO, Tesco was taking £1 in every £15 spent in the UK. When he stepped down, the figure was closer to £1 in every £8.

So it has proved for Philip Clarke who, after 40 years with Tesco, has lasted just three at the helm before giving way to Unilever’s Dave Lewis this October. After another profit warning, shareholders are unlikely to be sad to see Clarke go. However, his departure should be put in context.

The Leahy albatross

Many of the challenges faced by Clarke were inherited from Terry Leahy’s tenure. Most significant of these is the “Fresh and Easy” venture in the USA, which was subjected to criticism even when Leahy was in charge. Exiting Japan and reining in Chinese exposure mean that, while Leahy oversaw international expansion, Clarke’s foreign strategy has been largely limited to reining in former excesses, taking the brunt of investment write-downs in the process.

The same could be said domestically. Clarke’s appointment in 2011 came during a sea of change in consumer behaviour. The one-stop-shop superstores and loyalty cards that underpinned growth under Leahy suddenly looked very exposed. Online sales of consumer electronics, white goods and clothing have undermined Tesco’s big-box appeal, while austerity has boosted sales for discount retailers, making consumers cannier and less loyal. Finally, time-poor shoppers are flocking to smaller, well-located convenience stores.

Long-term vision

In fact, many of the actions that Tesco have undertaken under Philip Clarke could be seen as commendable in delivering long-term rewards.

Tesco successfully applied for foreign majority-owned multibrand investment in India before the door closed in May. It is also expanding in Thailand and has partnered with online innovators such as Rocket Internet to potentially ride the crest of a wave of Asian e-commerce growth.

In the UK Tesco has cut back big-box expansion and developed its convenience offering. But it has also been active in developing “dark stores” to support online growth, as well as hosting an online marketplace to allow partners to sell under the Tesco umbrella. It has developed its own “Hudl” tablet, to be followed by a smartphone, tying in with its Blink Box media streaming acquisition.

Chains like Giraffe and Harris + Hoole have been bought in recognition of the need to use in-store “experiences” to drive future footfall. These have come alongside a £1bn “facelift” of existing stores including a concept store in Watford that represents Clarke’s vision of the future.

The elephant in the room

However, the problem with these long-term plans is twofold. First of all piecemeal investments have given the impression of trying to spread strategy thinly across all bases rather than latch onto a winning idea.

Secondly, Philip Clarke has largely failed to meet the more pressing short-term problems with share and revenue resulting from discounters and changing consumer preferences which are weighing heavily on mid-market retail.

Another factor weighing against Clarke was that the board may have run out of scapegoats for Tesco’s malaise. Both UK Chief Richard Brasher and CFO Laurie McIlwee have given way since Clarke’s appointment but sales have not recovered.

The future

Dave Lewis, the first “outsider” to take the helm at Tesco, faces a baptism of fire. As well as the projects undertaken over the last three years he will have to accommodate diversifications under Leahy into sectors like financial services and telecoms. Channel strategy also remains in a state of flux with concept stores, big-boxes and convenience all jostling for space.

As someone who cut his teeth in driving Indonesian growth, Lewis may feel better suited to overseas strategy, but market exits and retreats add a further complication, especially since short-term strategy is focussed on re-establishing domestic share. Some analysts are already raising doubts about whether an (FMCG) executive can steer a retail ship as unwieldy and diverse as Tesco.

What Lewis will bring is a fresh perspective , unencumbered by the Tesco mind-set. He can also thank Mr Clarke for dealing with the ‘post-Leahy’ hangover and providing a less imposing predecessor’s shadow to step out from.

  • Jon Copestake, chief retail analyst, The Economist Intelligence Unit.