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January 13, 2012

On the money: Tesco’s Clarke admits UK failings

Tesco CEO Philip Clarke has said the UK retailer will focus more on products and on service to revitalise the company's poor underlying domestic sales.

By Dean Best

Tesco CEO Philip Clarke has said the UK retailer will focus more on products and on service to revitalise the company’s poor underlying domestic sales.

Clarke admitted the “shopping trip” at Tesco needed to improve to revive the retailer’s like-for-like sales in the UK, which fell again in the run-up to Christmas.

Tesco’s shares tumbled yesterday (12 January) after it said its latest fall in UK sales would lead annual profits to be at the “lower end” of expectations and that plans to invest in its domestic business would weigh on annual profits in its next financial year.

The retailer’s stock fell by more than 15% after its announcement but Clarke brushed off claims the company was in crisis. The Tesco chief said the retailer’s decision to “accelerate the rate of improvement” in its UK operations was necessary to ensure the it was a “leader for customers and for shareholders”.

“I feel like I’m in control. I feel like I have taken a decision that needed to be taken to get the UK business doing more of the right things for customers,” Clarke said. “I feel very determined. This isn’t going to kill us. This is going to make us stronger.

“It’s hard to take on the day but it’s absolutely the right thing. There’s been a lot of soul-searching this week about whether we go as far as we’ve gone. The truth is, we had to. We’re not going to be an also-ran, we’re going to be a leader. A leader for customers and then we will be a leader for shareholders.”

Tesco reported a 1.3% drop in UK like-for-like sales, excluding fuel but including VAT, for the six weeks to 7 January. In previous quarters, Tesco’s results have excluded VAT. The retailer’s total UK sales, including VAT by not fuel, were up 1.7%.
Clarke said he was “disappointed” with Tesco’s like-for-like sales over Christmas but dismissed suggestions that the retailer’s Big Price Drop campaign was to blame. “The Big Price Drop went far enough, it wasn’t a matter of that. It’s an important first step but it was never going to be all of it. There was a lot of promotional coupoing going on around Christmas and that’s probably, with hindsight, where we should have gone a bit harder,” he said.
However, Clarke acknowledged that Tesco needed work on the “shopping trip” as a whole and pledged that the retailer would invest more in products and service. “Retailers are judged on the total shopping trip. Just to work on one dimension would be a mistake,” he said.
“What we want to do is improve the shopping trip in order that we get our like-for-like back in line with the market. We’ve been running the stores a bit hot for a while and we need to invest back in people in the stores and product in the stores.”
Tesco admitted its investment would lead to “minimal” growth in trading profit in its next financial year. Clarke refused to be drawn on how much Tesco planned to spend in the UK but said the investment would be “very significant”. He added: “We’ve given ourselves enough headroom to do the things that we need to do.”

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