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Tesco’s shake-up is a spectacular confession of corporate flabbiness Tesco’s shake-up is a spectacular confession of corporate flabbiness
(35 minutes later)
Move the head office, shut 43 stores, cancel 49 new ones, axe the final dividend, cut 30% from central costs, make the pension scheme less generous, flog Blinkbox and Tesco broadband, put Dunnhumby up for sale, and hire a new UK boss from little old Halfords. It’s a frantic programme, no argument. Dave Lewis, Tesco’s would-be turnaround king, has been busy.Move the head office, shut 43 stores, cancel 49 new ones, axe the final dividend, cut 30% from central costs, make the pension scheme less generous, flog Blinkbox and Tesco broadband, put Dunnhumby up for sale, and hire a new UK boss from little old Halfords. It’s a frantic programme, no argument. Dave Lewis, Tesco’s would-be turnaround king, has been busy.
The measures make sense in themselves. It is only corporate ego, for example, that has prevented Tesco from closing unprofitable stores where there is no prospect of improvement. That is a good taboo for an outsider to break.The measures make sense in themselves. It is only corporate ego, for example, that has prevented Tesco from closing unprofitable stores where there is no prospect of improvement. That is a good taboo for an outsider to break.
Take a step back from the display of fireworks, however, and you realise how severely Tesco has lost its competitive edge over the last half-decade. Lewis’s plan to cut 30% from central costs is a spectacular confession of corporate flabbiness. Hiring Matt Davies from Halfords (a company worth £1bn versus Tesco’s £16bn) is an admission that an awful lot of retailing talent has walked out of the door over the years. And why on Earth was Tesco messing about with Blinbox in the first place? The technology is neat but the business always looked completely unviable for an owner that lacked its own telecoms network. Take a step back from the display of fireworks, however, and you realise how severely Tesco has lost its competitive edge over the last half-decade. Lewis’s plan to cut 30% from central costs is a spectacular confession of corporate flabbiness. Hiring Matt Davies from Halfords (a company worth £1bn versus Tesco’s £16bn) is an admission that an awful lot of retailing talent has walked out of the door over the years. And why on Earth was Tesco messing about with Blinkbox in the first place? The technology is neat but the business always looked completely unviable for an owner that lacked its own telecoms network.
Lewis’s, then, is a back-to-basics merchant. But the process will not be quick. He is trying to undo years of corporate drift and is operating under the severe constraint of an over-streched balance sheet and, one assumes, mighty write-downs to follow on the property portfolio. Lewis, then, is a back-to-basics merchant. But the process will not be quick. He is trying to undo years of corporate drift and is operating under the severe constraint of an over-stretched balance sheet and, one assumes, mighty write-downs to follow on the property portfolio.
He is also trying to avoid whacking shareholders with a rights issue – though he hasn’t spelled that out explicitly. Thus the price cuts for customers look underwhelming. At a first glance, they look like a case of catching up with opposition rather than setting the pace. Tesco’s shares rose 9% at one point on Thursday, but also note the reaction in Sainsbury’s stock – up almost 5%. The market does not smell the start of a real price war.He is also trying to avoid whacking shareholders with a rights issue – though he hasn’t spelled that out explicitly. Thus the price cuts for customers look underwhelming. At a first glance, they look like a case of catching up with opposition rather than setting the pace. Tesco’s shares rose 9% at one point on Thursday, but also note the reaction in Sainsbury’s stock – up almost 5%. The market does not smell the start of a real price war.
Lewis has never pretended that a turnaround would be quick or easy. He’s got a half-decent Christmas under his belt (like-for-like sales were down just 0.3% in the six-week period) though one shouldn’t read too much into that: the “£5 off £40 of shopping” vouchers were flying like confetti. In short, a big job looks even bigger today. The old Tesco that terrified the competition may be half a decade away – and that’s if the plan succeeds.Lewis has never pretended that a turnaround would be quick or easy. He’s got a half-decent Christmas under his belt (like-for-like sales were down just 0.3% in the six-week period) though one shouldn’t read too much into that: the “£5 off £40 of shopping” vouchers were flying like confetti. In short, a big job looks even bigger today. The old Tesco that terrified the competition may be half a decade away – and that’s if the plan succeeds.