Tesco CEO Philip Clarke today (5 June) brushed off suggestions the retail giant might have to adapt its strategy outside the UK – where sales in all but two of its markets fell in its first quarter.
Like-for-like sales, including VAT but excluding fuel, were only up in Hungary and Malaysia, as Tesco saw underlying sales drop in the UK and in its other eight markets.
In Asia, like-for-likes fell 3.8%; in Europe, they were down 5.5%. While much of the focus in recent quarters has been on Tesco’s attempts to turn around its UK arm, some in the City are questioning its performance overseas, with calls for further cuts to its international business after decisions to quit Japan and the US.
Speaking to reporters today after Tesco reported a fall in group like-for-like sales, Clarke was asked whether he felt the retailer needs to change its strategy in Asia and Europe.
“Not at all in Asia,” Clarke said. “We’ve got market-leading positions in Thailand and Malaysia and we’re the number two player in Korea. The businesses there are making good progress, gaining market share.”
In Thailand, Tesco’s like-for-like sales fell 3%, although the retailer said it gained market share. It pointed to slower growth in the Thai market, particularly in food. Tesco’s like-for-likes in Malaysia increased 1.3%.
Further north in South Korea, like-for-like sale fell 5.1% thanks to the impact on restrictions on opening hours introduced last year. Tesco’s Korean sales in the fourth quarter of its last financial year were down over 7%.
In China, Tesco said the whole sector had been affected by the bird flu outbreak and a food safety scare involving pork. Sales there fell 4.9%. Last month, The Financial Times reported Tesco was reportedly looking for a partner in China to continue to expand but use fewer resources.
Reflecting on Tesco’s Chinese business today, Clarke said: “China is a business we said we are going to focus much more on profitable sustainable growth.”
He added: “All of those businesses [in Asia] have got very good long-term prospects; the economies are growing and maturing and retail is getting bigger. It’s a terrific part of the group.”
In Europe, where Tesco operates in six markets outside the UK, like-for-like sales fell in all markets except Hungary, where sales inched up 0.2%.
Clarke said Tesco’s operations in Hungary, Poland, the Czech Republic and Slovakia, needed to “focus hard” on “making more” of their existing businesses. “We’re not expanding as much as we used to. Who would do that with such great uncertainty?Look at the economic forecast for consumers in the eurozone,” he said. However, Clarke added: “Market shares are good, market-leading businesses in Slovakia and Hungary so we don’t have to adjust it much.”
Like-for-like sales were down by more than 4% in Slovakia, by 8% in Poland and by 9% in the Czech Republic. Sales in Ireland, where Tesco is market leader, dropped 3%, while in Turkey, like-for-likes slumped 15%.
Investec analyst Dave McCarthy, who earlier this week advocated further “rationalisation” to Tesco’s international operations, said the retailer’s results from Asia were “poor” and “even worse” in Europe.
“On a two-year view. LFLs are down in every country apart from Hungary,” McCarthy wrote today. “There are double digit declines in Turkey (-18%) and Czech (-13%). If a store produced such consistently bad sales, it would almost inevitably be closed.”