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Tesco to Pay Dearly to Leave United States Tesco to Pay Dearly to Leave United States
(about 14 hours later)
LONDON — After six years of fruitless attempts, the supermarket chain Tesco said Wednesday that its withdrawal from the United States would come at a big cost. LONDON — After six years of fruitless attempts to make money in the United States, the supermarket chain Tesco said Wednesday that its withdrawal from the market would come at a big cost.
Tesco has yet to decide how to exit the U.S. market, where it set up the Fresh & Easy convenience stores in 2007, but said the move would cost 1.2 billion pounds, or $1.8 billion. Some analysts have said the withdrawal, which was expected, comes after the British chain grossly misjudged American consumer habits. Tesco has yet to decide how to exit the U.S. market, where it set up the Fresh & Easy convenience stores in 2007, but said it would cost £1.2 billion, or $1.8 billion. Some analysts have said the withdrawal, which was decided in December, comes after the British chain grossly misjudged American consumer habits.
“With profound and rapid change in the way consumers live their lives, our objective is to be the best multichannel retailer for customers,” the chief executive, Philip Clarke, said in a statement. “Our focus now is on disciplined and targeted investment in those markets with significant growth potential and the opportunity to deliver strong returns.” “When you try something there is always a risk,” the chief executive, Philip Clarke, said of the U.S. business at a news conference. “We tried something a long way from home.”
Mr. Clarke started a review of Tesco’s businesses over a year ago, scaling back operations oversees to focus on its struggling business at home. Large investments abroad over the past decade, including in Asia, proved expensive and somewhat less successful than hoped. At the same time, sales struggled in Britain, where Tesco relied too much on its large market share alone to generate sales growth. Tesco initially hoped it had discovered a market niche for smaller stores offering warm meals along the West Coast. But it soon became clear that the stores failed to compete with larger supermarkets as the economic slump crimped consumer spending. Attempts to turn the business around by changing store interiors, the product range and marketing also failed.
Reporting a drop in profit for the year that ended Feb. 23, Tesco said business in South Korea and Europe was difficult. The economic crisis in Europe meant that consumers were cutting back spending and in South Korea, new restrictions in opening hours hurt sales. Laurie McIlwee, the chief financial officer, said he was in discussions with “a number of organizations that want to buy the entirety of Fresh & Easy,” Tesco’s preferred outcome. He declined to say how many companies were involved in the discussion but said a deal could be announced in as few as three months.
Even in Britain, Tesco is slowing its expansion. It said it decided not to go ahead with planned expansions of about 100 properties here, adding to a total write-down on its real estate of 804 million pounds. Tesco has been losing market share in Britain to cheaper rivals like the discount retailer Aldi, and it was affected by the horse meat scandal earlier this year, which forced it to withdraw some products. Jonathan Pritchard, an analyst at Oriel Securities, said that exiting the United States was a good idea and that he expected Tesco to complete the task in the next six to nine months.
To attract consumers to its British stores, the chain invested in the upmarket coffee chain Harris + Hoole, the bakery brand Euphorium and the family-friendly restaurant chain Giraffe, which it bought last month. Mr. Clarke said the episode had taught Tesco “that when you can’t see a return in a reasonable time frame, you call an end to it and move your energy elsewhere.”
“There are better things we can do with our resources for our shareholders than that,” he said.
Tesco now plans to open additional smaller convenience stores across Britain and to win market share in South Korea, Malaysia and Thailand. It also plans to benefit more from faster-growing retailing markets in China, India and Turkey.
Mr. Clarke started a review of Tesco’s businesses over a year ago, scaling back operations outside Britain to focus on its struggling business at home. Large investments abroad over the past decade, including in Asia, proved expensive and somewhat less successful than hoped. At the same time, sales struggled in Britain, where Tesco relied too much on its large market share alone to generate sales growth.
Reporting a drop in profit for the year that ended Feb. 23, Tesco said business in South Korea and Europe was difficult. The economic crisis in Europe meant that consumers were cutting back spending, while in South Korea, new restrictions in opening hours hurt sales.
Even in Britain, Tesco is slowing its expansion. It said it decided not to go ahead with planned expansions of about 100 properties here, adding to a total write-down on its real estate of £804 million. Tesco has been losing market share in Britain to rivals with lower prices, like the discount retailer Aldi, and it was affected by the horse meat scandal this year, which led it to withdraw some products.
To attract people to its British stores, the chain invested in the upmarket coffee chain Harris+Hoole, the bakery brand Euphorium and the family-friendly restaurant chain Giraffe, which it bought last month.
Tesco’s announcements have “given investors mild indigestion,” Richard Hunter of Hargreaves Lansdown Stockbrokers said.Tesco’s announcements have “given investors mild indigestion,” Richard Hunter of Hargreaves Lansdown Stockbrokers said.
Tesco shares fell 2 percent in London on Wednesday morning. The supermarket chain said trading profit fell 13 percent to 3.45 billion pounds in its fiscal year that ended in February. Sales rose 1.3 percent to 72.4 billion pounds. Tesco shares closed down 3.9 percent in London on Wednesday. The company said trading profit fell 13 percent in its fiscal year that ended in February, to £3.45 billion. Sales rose 1.3 percent, to £72.4 billion.