Wow, Just Wow. It is almost beyond belief, and there may be more to come yet.
I’ve written about the trials and tribulations of Tesco before (here and here for example), but have generally taken the view that a crisis of confidence at a market share of c30% is one most retailers would love to have. But, there does come a point, or more critically a cascading series of points.
And maybe that’s where we are now. These are dangerous times for Tesco, yet these may also bring real opportunity. Hence my initial tweet about “turmoil”; a view that seems common now.
The accelerating decline of market share in the last year or so to 28% is one thing and it did cost the CEO his job. The loss of the finance director some months before now appears more significant, or certainly the lack of anyone doing that job since last April; surely gardening leave leaving no one in place needed to be disclosed? The lack of a coherent response to the discounters and other competition, let alone spotting and then responding to the strategic structural change underway in retailing (bad on the hypermarkets but ahead on the internet), were all reminiscent of trying to turn round a super-tanker. But as I wrote before, it has been thus since 2007 or so, with only profits masking the situation and distractions such as the USA attracting the attention. But then in many organisations there is a temptation to see the “new” as exciting and the “old” as boring and not worthy of attention.
But are Tesco in a different place this time? Especially as the profits (at least in the last six months) are now under question. Overstating profits by c25% at half-year seems like a biggie. The new CEO having to suspend four UK directors and plead with M&S to release his new Finance Director early, at least shows action, but is the cause the tip of the iceberg (and is Tesco the Titanic)? And how much will such distractions (as necessary as they are) eat management time and take it away from the strategic decisions and operational remedies needed?
There are many questions about the money unanswered at this point and one might expect major changes to ensue whatever the outcome of the investigation. The underlying issues, for which the new CEO was brought in, have not gone away, nor will they without action. What new issues in terms of accounting practices, and the behaviors underneath them, Deloitte et al will reveal remains to be seen. Who knew what, when, will be uncomfortable for some (in Tesco and in their auditors and others) , let alone the answers to the question of who should have known what, when? How much of this is accident or design, and who really benefited and to what extent are further questions? And whether this casts a shadow across all of the multiples will be a question nervously pondered over in many places (retailers and their shareholders as well as the SFA) in the coming weeks.
Bill Grimsey made a point that it took Wickes 5 years to get over the crisis of (at this point what seems) a similar nature a few years ago. Do Tesco have the luxury of that amount of time given the changed circumstances, the competition and their position?
But on the other hand, could this be the catalyst for more radical action to meet the underlying challenges from within? I am not sure vast numbers of consumers are really too worried by the arcane (to them) booking of revenues. They are though worried about the state of the stores, the prices they are charged and the service they receive. Meeting their needs in these respects and stopping the hemorrhaging of market share, and then restoring profit (though at what level is a further question) is the key task for (what will have to be expanded) new management.
As Dave Lewis has said, there needs to be a house cleaning, and a change in approach, but on its own these will not matter, unless what the consumer sees in the stores and online is more compelling and stops them moving to other retailers. If people continue to fall out of love with Tesco then 31% may become to be seen as a long lost golden upland. But, if the rot can be stopped then it may be a new target to (re-)achieve.
(If anyone needs to catch up on what the UK press are saying about the Tesco situation, then the twitter feed of Neil Saunders of Conlumino (@NeilRetail) is a great place to go, as he does miracles in summarising retail news every day)