Thoughts on Tesco and M&S

The obvious cheap shot, unresisted by a number on social media so far today, is that whilst Tesco have revealed their Trading Statement for the last 19 weeks, we need to wait a while to see if these figures are accurate. Some are even demanding a recount.

But in reality, the figures whilst of interest are not the real story about Tesco today. So let’s get the figures out of the way – they did OK, considering. Better than many thought they would and better than the non-Christmas part of the trading period.

The real story is in the first steps of the turnaround by Dave Lewis. Profit guidance for the year is maintained and benefits from “the new level of financial control and cost control” will be reinvested into the customer proposition (prices one assumes, though stores need work). Three priorities are set out:

  1. Regaining competitiveness in the UK, which includes a new CEO, new simplified working structures and practices, closure of the Cheshunt HQ and of 43 unprofitable stores.
  2. Strengthening the balance sheet, by revision (assume halting) of store building programme, closing the pension scheme, reduced capital expenditure (down a further 50% this year), disposals in telecoms, no final dividend for 2014/15.
  3. Rebuilding trust and transparency, through pricing initiatives, social responsibility initiatives and new supplier relations (this includes a cut in the product lines and more space for best-sellers).

“Drastic Dave” has made the first steps in the process, though there is a long way to go and there are some big issues to resolve both internally in operations and externally in the investigations of the past behavior.  But the direction is now clearer, and as I have said all along a crisis at 30% of the market is better than a crisis at 3% (see Bank and USC as this week casualties and there will be others).

The approach is very much on making the business simpler and more streamlined and focused more on what the customer needs in store. Time and again in his webcast Dave Lewis emphasized that the store had to be the focus of the business. All this suggests a cull of product lines to reduce breadth, less promotions and more straightforward price messaging (new adverts and in store material today), considerable job losses in various parts of the business but not perhaps in customer facing parts, and an emphasis on having the right stores in the right places, working harder. The store closure list will be interesting as it apparently covers a range of formats, but the abandoned new developments are mainly planned Extra hypermarkets. A full property review will undoubtedly add to the totals announced today.

Perhaps the most defining part of all this is the move of the headquarters away from Cheshunt. If you wanted a symbolic step in changing the culture then breaking the link with Cheshunt that goes back 70+ years and is redolent of Jack Cohen is as good a way as any of doing it.

In all this we might want to spare a thought though for the people who are about to lose their jobs. The degree of overhead cutting being done here is not fully clear but is substantial and people will suffer in this, let alone the fact that all “colleagues” will take a hit on their pension package. There will also be consequences in supplier businesses as well as the range is rationalised.

The Tesco announcement was good cover for the M&S story. Their results are really a tale of two halves. Food in the Christmas period was stellar as the country went mad for all their goodies. But in general merchandise and especially womenswear the story was pretty ugly. Add to that real problems in the online operation which saw sales online fall (at a time when the sector online has been shooting ahead -look at JLP) and a new distribution centre cope with only a third of the volume it was intended for.  As we have written before the website/online refresh was disastrous and is taking a long time to get right. Publicity over their problems probably scared off consumers in the Christmas rush.

So what do we learn from these two updates today? Tesco are signalling more than ever that it is not business as usual and we are likely to see further operational changes in store portfolios and operations. With c100 stores closed or not to be opened after today, we are seeing the retrenchment brought on by changing consumer patterns and over-ambition of the past. These announcements will not be the last of this form, and the fact closures are more focused on convenience stores apparently is really interesting for the development of that market. M&S have shown clearly that online is not a simple story of build a website and they will come. Websites need to be good but the fulfillment is vital. Fall down on both and your reputation may take a long time to recover in that sphere.

About Leigh Sparks

I am Professor of Retail Studies at the Institute for Retail Studies, University of Stirling, where I research and teach aspects of retailing and retail supply chains, alongside various colleagues.
This entry was posted in Availability, Click and Collect, Consumer Change, Food Retailing, Logistics, Marks and Spencer, Multichannel, Pricing, Store Closures, Supply Chains, Tesco, Turnaround and tagged , , , , , . Bookmark the permalink.

One Response to Thoughts on Tesco and M&S

  1. Pingback: The Conversation: What is Going on at Tesco? | Stirlingretail

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