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Tesco losses - a whole other can of beans?

supermarket 150x150 Thursday 23 April 2015

Professional Tutor in Business Rev Tony Bradley discusses the latest figures from Tesco and asks can the retailer adapt to suit our changing shopping habits?

So, how do you do your Tesco shop?  The way that you answer that question may reveal a great deal about the storms surrounding Britain's largest retailer, as it records the single greatest corporate loss in UK retail history.  You may be one of those who completes your online order, on your smart phone, at one a.m. just as you leave your favourite night club. 

Or, your answer may be more prosaic.  "I don't, I prefer M&S...or Lidl".  That polar choice reflects other significant changes to British society.  Equally, you may be one of the desperate army of last, who can't decide what to have for tea until 6pm, and pop into their local Express (other convenience stores are available, that's the problem, Tesco!).

Then, there is a very small - but growing - band of niche consumers, who've decided to boycott Tesco for a range of 'greener' reasons.  "We don't like the way they treat their suppliers".  "Tesco is killing the High Street".  "I prefer my local farmer's market".  "Big is ugly, time to consign the dinosaur supermarkets to the ecologically-friendly dustbin-of-history".

Whatever the reasons, there is little doubt that Tesco's new boss, Dave Lewis, is in the centre of a major turf war.  As he announced the record losses, of an eye-watering £6.4bn for the past trading year, he was on the offensive to claim that Tesco's had turned the corner and, like Arnie, "will be back!"  In fact, although the early market response indicated an inclination to share Mr Lewis's optimism, Tesco closed down 12.1p, a fall of 5.2%.

What is happening?  Dave Lewis rejects the increasing conventional wisdom that a retail revolution is taking place, in everyday shopping habits.  And, he may be right to do so.  Clearly, more people do shop smaller, faster, more frequently, in response to that ever-present kids’ call, "what's for tea?"  But, other market trends sound an even more dire warning for the not so-jolly, or green, giant.

Tesco, along with Sainsbury's (most analysts agree that Justin King could have been re-named "Justin Time"), to a lesser-extent, Wal-Mart's UK experiment with Asda, and Morrisons, are each having to, Janus-like, face off two equally severe forces.  The rise of the discounters (not a new Hollywood blockbuster) is almost balanced by the "shop for posh" consumer revolution, that has John Lewis’s Waitrose, flanked by M&S and regionals such as Booth's, taking a significant 10%+ market share cut.

But, it is too early to write-off Tesco, even if they had to very significantly write-down the market valuation of both their property portfolio and their stock.  What price a Tesco's financial manager, if they find it hard to calculate the cost of a tin of own-brand baked beans?  Tesco remains Britain's biggest retailer, by some margin.  They have the capacity to turn things around. 

Tesco can colonise the High St with more Express and alternative filling-stations.  Even so, technology, social inequality and cultural change are all barbarians at the door.  If Tesco is to rise again the clock is ticking fast.

Liverpool Hope Business School

Professional Tutor Rev Tony Bradley - profile

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