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| Tesco’s shakeup is a spectacular confession of corporate flabbiness | Tesco’s shakeup is a spectacular confession of corporate flabbiness |
| (about 14 hours 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 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. | 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, 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. | 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. |
| A bad fit for M&S | |
| Nice sprouts, shame about the skirts. If the Christmas story at Marks & Spencer feels familiar, there was at least a twist this year. Off-trend clothing designs didn’t take the rap for a “difficult” quarter in which like-for-like sales fell 5.8% in general merchandise. Rather, the weather and the warehouse were blamed. It was too hot to sell jumpers in October and November and automation cocks-up struck the huge Castle Donington distribution depot in December. | |
| The explanation of events is clearly accurate. But it does feed the sense that M&S is in the business of false dawns and own goals. Back in early November, at the half-year results, M&S was full of cheer as general merchandise sales finally seemed to be about to turn positive. Instead, Black Friday, the retailers’ self-defeating discount jamboree, threw Castle Donington into chaos. | |
| Chief executive Marc Bolland is trying the patience of some shareholders. It is now four years without sales growth in general merchandise, which was never part of the original script. And it’s not as if the big warehouse is brand-new – it opened in 2013. | |
| But bosses tend to be jettisoned only when the cock-ups destroy profit expectations. Thursday’s confessions prompted only a mild trim (2%, on broker Investec’s forecasts) because Bolland stuck to his pledges on higher margins. Meanwhile, the food division continues to serve as a get-out-of-jail card. So the longed-for prize for 2015 and 2016 – lots of cash generation as capital expenditure falls – is still in reach, in theory. | |
| Bolland has to prove that he can put the right plugs in the right sockets at the warehouse. But, if he can manage that, one suspects he’ll be around for another Christmas. |