Tesco chief executive Phil Clarke has vowed to fix the UK business with an overhaul of ranges, better communication with customers and faster innovation after admitting its performance has been “below par”.
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In an extraordinarily frank performance as he delivered his first set of full-year results on Tuesday, Clarke said: “By any metric the UK is an outstanding business but we lost momentum, we’ve not been leading, and that meant we did not cope as well with the tough trading conditions.”
Clarke, who took over last month, admitted that UK non-food had particularly lost its way. “Our clothing ranges were not quite right, electricals and home had got a bit samey and that affected our [Tesco] Extras,” he said. “But we know what we need to do, and it’s not structural. It’s about space allocation, range, trend and a new level of innovation.” He also plans to grow the online non-food range to 100,000 SKUs.
The results meeting heralded a new era of Glasnost at Tesco under Clarke, who signalled a different approach to his predecessor Sir Terry Leahy. “I will do things differently, as I’m a different person. I like us to be in shops, close to customers and colleagues. I’m ready to talk about the things we’re not so good at as well as the many good things we do.”
For the year to February 26, UK like-for-likes were flat excluding petrol and VAT, but they fell 0.7% in the fourth quarter. Total sales were up 5.5%, and trading profit up 3.8% to £2.5bn.
At group level, Tesco reported underlying pre-tax profit up 12.3% to £3.8bn with good growth in Asia and a strong recovery in central Europe. Group sales were up 8.1% to £67.6bn. Clarke said all Tesco’s Asian markets made progress on profitability except Japan and China.
In Japan, Clarke said Tesco will not invest any more capital until “we can clearly see a way to win”, while in China a tightening of government policy and difficulty in finding suitable sites slowed growth. Growth targets have been reduced to 50 Lifespace malls in five years, instead of the 80 outlined last year.
In the US, losses at Fresh & Easy increased in the year, at odds with Tesco’s previous guidance. Clarke said the losses were resulted from the integration of two fresh food suppliers acquired, but is confident it will break even in the 2012/13 year with the benefit of some refinements. “The model was brilliant, but at the same time it pulled away a little from the mainstream.”
Clarke confirmed that Tesco would launch an online marketplace, as revealed by Retail Week. The marketplace, which will launch in late 2011 or early 2012, will be global and could include clothing, as well as other product categories.
Tesco in numbers
£3.8bn Underlying group pre-tax profit
£67.6bn Group sales
£44.6bn UK sales
-0.7% Q4 UK like-for-likes (ex-VAT and petrol)
£186m US losses