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April 18, 2012

On the money: Clarke defends Tesco UK investment plan

Tesco CEO Philip Clarke has said he thinks the group's plans to spend GBP1bn (US$1.55bn) overhauling its domestic business is enough to improve its performance.

Tesco CEO Philip Clarke has said he thinks the group’s plans to spend GBP1bn (US$1.55bn) overhauling its domestic business is enough to improve its performance.

The company, which has seen its share of the UK grocery market erode in recent months amid falling like-for-like sales, revealed further details this morning (18 April) of how it plans to revitalise its domestic business.

The announcements came as Tesco admitted profits from its UK arm had fallen in the 52 weeks to the end of February. It reported a 1% fall in profits to GBP2.5bn.

Speaking to media today, Clarke defended the retailer’s plans to improve its UK arm, initiatives that include investing in more staff for existing stores, and refreshing or refitting some 430 stores, is enough to improve sales performance in the UK.

“We think it is enough. We spent nine months working on the plan… we have already improved the performance of some of our stores,” Clarke said, adding that the GBP1bn investment will include, “GBP200m in a greater online capability, GBP200m in refreshing stores, GBP200m in staffing, and the balance goes into the other things. Brand and marketing as an investment, that range and quality requires a margin investment.”

Clarke, however, declined to provide any guidance on how the success of the plan will be measured.

“I appreciate the question but I’m not going to give any precise answers because we’ve laid out for our investors what they can expect … we’ve got to get on now with implementing the plan.”

Tesco issued a profit warning in January that saw the retailer’s shares plunge 15%. Its like-for-like UK sales have fallen for four consecutive quarters and the company’s share of the UK market has eroded.

“Much has been written about January,” Clarke told journalists today. “The business is far from broken but it’s not as good as it could be and customers felt it, I felt it. Good enough is not good enough. Their expectations have moved on and we haven’t. And I believe that as an industry we have been running up the down escalator for too long. So we drew up a plan to build a better Tesco.

“We knew exactly what to do and how to do it,” he emphasised. “We’ve been implementing the plan, I’ve been impatient to get it done quickly. So after Christmas I decided to drive the pace and do three years in one.”

In March, however, Tesco saw the departure of Richard Brasher, the chief executive of its UK business, after an apparent clash with Clarke over the company’s domestic strategy.

Clarke, who has taken control of the retailer’s domestic business head of Brasher’s planned departure, told attendees that the situation was “not ideal”, but added: “You can only have one captain on the pitch”.

“This is a very important thing for Tesco. The interesting thing about the UK leadership team now is that they’ve all done at least one international assignment,” Clarke said. “I’m blessed with lots of talent below coming through and its inevitable that there are changes when there’s a change at the top and younger people are coming through and being given the chance to shine so it’s quite exciting.”

Tesco shares, which rose this morning after its initial announcement, were down 2.04% at 321.6p at 15:40 GMT.

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