Sir Terry Leahy’s leadership of Tesco has been called into question. We take a look at his track record and those of some of his peers.
A business leader’s legacy should be judged some years after their departure, many believe. In recent weeks the reputation of former boss Sir Terry Leahy has been under scrutiny after Tesco legend and former chairman and chief executive Lord MacLaurin last month cast doubt on the legacy of Leahy, widely regarded as one of the UK’s greatest retailers.
When Leahy left the grocer in March 2011 it was riding high. In his 14 years in charge, he had expanded the business from a 568-shop grocer to a 2,482-store global Goliath.
But in the intervening two years a lot has changed and profits fell. UK sales stalled and new boss Philip Clarke initiated a costly withdrawal from the US. It takes it takes time to evaluate a retailer’s legacy, and some have argued Leahy’s has been judged unfairly early.
Here Retail Week looks at his legacy and those of some of the sector’s other leaders.
Sir Terry Leahy: Tesco
After rising through the ranks, Sir Terry Leahy transformed Tesco almost beyond recognition during his time leading the business.
He introduced Tesco’s innovative and transformational Clubcard loyalty programme, and led the
shift in new formats across the portfolio including the smaller convenience Express and the giant Extra stores.
He also launched Tesco.com in 2000 and created the Tesco Bank.
Leahy paved the way for grocers when he diversified into non-food, creating a new market for supermarkets across the country.
Rapid expansion in the UK - where in his time stores numbers rose from 568 to 2,482 - was replicated overseas as the retailer launched in Asia, Europe and the US. International stores ballooned from 190 to 2,329 under his leadership.
But cracks across key parts of his former empire have begun to show, in part due to this rapid expansion.
Some have criticised Leahy, saying he took his eye off the UK and let standards of service slip.
Last year Tesco’s group profits declined for the first time in 20 years, following the grocer’s first profit warning in more than 20 years after a poor Christmas.
Then in April this year Leahy’s successor boss Philip Clarke called time on the loss-making US Fresh & Easy chain, which has failed to make a profit since it was launched in 2007.
Tesco’s difficulties led former Tesco boss Lord MacLaurin to label Leahy’s legacy “sad” when he spoke out at the retailer’s AGM last month. He believes it will take up to three years to put Tesco back on track.
But it is difficult to dispute Leahy’s success during his 14-year tenure as Tesco’s boss, when profits hit £1bn and rose still further.
Shore Capital head of research Clive Black says: “When Leahy left he may have thrown the ball at Clarke a little fast and a little low.”
Black concludes: “The fact is he took Tesco from a UK retailer to the third biggest retailer in the world. While it’s not perfect we should be very proud of Tesco from a commercial perspective.”
Sir Stuart Rose: Marks & Spencer
The Marks & Spencer that Sir Stuart Rose returned to in 2004 had lost its magic, with rundown shops, service and products that were not clicking with customers. Rose aimed to turn around the iconic retailer by taking it back to its foundations of quality, value, service, innovation and trust, and he restored profits to £1bn, a level it had not achieved since its trading peak in 1997.
He is credited with refocusing and re-energising the business as it tapped into the fashion market more
effectively, disposed of non-core businesses and he successfully defended against bid interest from Sir Philip Green.
But Rose’s controversial appointment as M&S executive chairman in 2008 was met with anger among shareholders and the City.
In 2010 Rose scaled back his role to chairman as he handed over the reins to current chief executive Marc Bolland. In 2011 he left altogether.
In an interview with Retail Week in 2011, Rose said he believed he had “fully repaired” the retailer. “Marc Bolland and the team I left behind have now got to show they can grow the business,” he added.
Yet, since Rose’s departure, trading has declined at M&S. Pre-tax profits fell to £564m last year from £780.6m the year Rose exited.
Conlumino chief executive Neil Saunders says: “There is no doubt that Sir Stuart left the business in a much better state than he found it.
“He was very good on the product side and a very good leader but the criticism would be that he didn’t fundamentally alter the business.”
But Shore Capital head of research Clive Black says: “Stuart managed M&S in a difficult time. It didn’t
have the clarity of identity, which he created there.”
Some say Rose should have done more to improve M&S’s stores and infrastructure.
However, Black highlights some decisions that had to be reversed under the current management, including Rose’s increase of branded food products up to 400, which the current management has scaled back. “It was a time when Sainsbury’s and Tesco were quite heavily encroaching on M&S’s field and Rose may have moved too much on to their playing field,” he adds.
Marc Bolland: Morrisons
Marc Bolland was the darling of the City when he left Morrisons. Under his guidance the Bradford-based grocer was gaining ground on its rivals and was finally making inroads in the South, where it had historically been weak.
However, since his departure to M&S, growth has faltered under successor Dalton Philips. Underlying pre-tax profit fell 4% to £901m while like-for-likes dipped 2.1% in its year to February 3. Philips has blamed the lacklustre performance on Morrisons’ lack of presence in the two fastest growing parts of the market, online and convenience.
It was clear during Bolland’s tenure that online grocery was gaining traction and questions were being asked before his exit about whether Morrisons should introduce a web offer.
The delayed start has put Morrisons on the back foot in the increasingly competitive world of online grocery, which is set to grow from £5.6bn last year to £11.1bn by 2017 according to the IGD.
Meanwhile, UK convenience store sales jumped 4.6% in the year to April 2012 and now represent 20.8% of the total UK food and beverage retail market, according to the IGD. Convenience stores operated by multiple retailers were the fastest growing part of the market with sales up 9.6% year-on-year.
Philips has since sought to get a foothold in these areas by launching convenience format M-Local and partnering with Ocado to launch online next January.
“Of course, he [Bolland] should have gone into [online and convenience] but so should the previous management teams,” says Bryan Roberts, retail insights director at Kantar. “It’s not like convenience and the internet were new. It’s been a massive trend for 15 years.”
However, Bolland won plaudits by taking on a fragmented Morrisons business after the troubled Safeway acquisition and transforming it into a united retailer with a strong sense of direction. Morrisons had issued
five profits warnings ahead of Bolland’s appointment and he put it back on track.
Roberts says that some cynics believe Bolland benefited from fortunate timing at Morrisons, and that it had “already been mended, those steps had already been taken and that it was on the road to recovery”.
However, Bolland’s renewed focus on fresh food and provenance are still Morrisons’ key USPs, an attribute it was keen to highlight during the horse meat scandal.
Roberts says: “A lot of it was pre-existing [before Bolland] such as its vertical integration, but he was very good at marketing it and educating both new and existing Morrisons customers about what it stood for.”
George Davies: Next, Asda and M&S
Once dubbed “king of the high street”, George Davies has dressed the nation’s women for most of his working life.
He headed Next and created brands George at Asda, Per Una and more recently, GIVe.
Davies helped transform Next into the retailer it is today. He introduced homewares, the famous Next Directory - which still powers growth - and launched kidswear and the Next account card.
However, for all this success, in 1988 Next had lost direction, with the blame put on Davies’ expansion plans and diversification of the brand. At the end of the year Davies was ousted and replaced by Sir David Jones.
Davies was accused of being egotistical and taking Next to the brink of bankruptcy. It is thought the two men did not speak for almost 20 years afterward.
Despite the issues at Next, Asda soon lured Davies with the prospect of creating a new range of clothing for
the supermarket chain. The range has been a massive success - George at Asda is one of the UK’s biggest clothing retailers and the brand has been rolled out internationally while other supermarket rivals have also tried to emulate the success of Davies’ brand.
Davies’ next retail partnership helped cement the entrepreneur’s reputation as one of the UK’s most successful brand creators. In 2001, Marks & Spencer briefed Davies to create a line of clothing to deliver fresh appeal.
The result, Per Una, generated an annual turnover of more than £230m within three years, accounting for more than 10% of M&S’s womenswear sales.
The popular brand left Davies with a big windfall. He took home £125m when he sold it to M&S in 2004. The fashion designer’s departure as part-time chairman of Per Una in 2008 was viewed as a blow to the retailer.
However, Davies’ most recent venture didn’t prove so successful. GIVe, a womenswear chain he launched in 2009, was a disaster.
Independent analyst Nick Bubb says: “His short-term legacy at Next was clearly poor, because of the ill-considered acquisition spree in the 1980s and the stretched balance sheet, but his long-term vision of home shopping was powerful. He went on to create great brands in George and Per Una, so his place in the retail hall of fame is secure.”
Andy Bond: Asda
When former Asda chief executive Andy Bond stood down in early 2011, Walmart international chief executive Doug McMillon said to staff: “Under his leadership Asda has continued its legacy of one of the finest everyday low price retailers in the UK and across the Walmart chain.”
While everyday low prices (EDLP) has been Walmart’s governing principle, Bond’s legacy has been the Asda Price Guarantee, which promises to refund the difference if a basket is found cheaper at any rival supermarket.
When launching the price guarantee in 2010, Bond said that it would put an end to grocery price wars because Asda would not be beaten.
However, Tesco and Sainsbury’s followed suit with their own similar offers.
Despite this, few could question that Asda’s price credentials remain one of its strongest attributes.
Yet, Bond did not tackle one of Asda’s major challenges of quality perception, according to Bryan Roberts, retail insights director at Kantar. “You could argue it would take a generation to shift that rather than a few years of management,” he says.
Roberts describes Bond’s tenure as a “good innings”. “It’s been a fairly smooth transition,” he says. “There’s been no big departure from his strategy under [current boss Andy] Clarke.”
This could be about to change after Asda hired consultancy McKinsey & Company last year to help devise a strategy to position it more effectively. It is possible that parts of Bond’s five-year plan, which was compiled just three years ago, could be rewritten.
Bond’s strategy was to become the number one non-food retailer in the UK by 2015, which included the opening of 150 Asda Living stores and to create a “world-class dotcom operation”.
However, only a handful of new Living stores have been added since 2010 and it now has just 33.
Since then, non-food has taken a back seat as convenience took centre stage among the grocers.
Asda bought Netto in 2010, soon after Bond stood down as chief executive and became chairman, although he was a key architect of the acquisition. Asda has continued to plough ahead with its convenience stores.
The online strand of Bond’s strategy will likely remain a key part of any new plan and it is an area that Bond led with aplomb. By the time of his departure Asda’s home shopping business reached more than 97% of the UK.