Tesco is “likely” to quit the US, CEO Philip Clarke admitted today (5 December), after the UK’s largest retailer confirmed it is reviewing its options for its Fresh & Easy business in the country.
Clarke said Tesco was “considering all options” for the loss-making business but indicated the retailer would leave the US five years after entering the market. The retailer said it had received a “number of approaches” to buy all or part of Fresh & Easy or to “partner” with it to “develop” the chain.
The Tesco chief blamed the impact of the “unprecedented crisis in the markets” on the states the retailer had targeted on the West Coast.
“It feels like a long time ago now, but when Tesco announced plans to open a business on the west coast of the US in 2006, the global economy was flying; not even the brightest economists in the world could foresee the unprecedented crisis in the markets about to engulf the world,” he said.
“But when it hit, it hit hard. And those states in the US where we were trying to build a presence – California, Nevada and Arizona – were particularly affected by the sub-prime crisis. Launching Fresh & Easy in the world’s most competitive retail market was never going to be easy, but the economic backdrop made the task twice as hard.”
Clarke, who took over as Tesco chief executive from Sir Terry Leahy last year, has faced pressure to exit the US amid problems in the retailer’s domestic market. Within months of taking the helm, he announced plans to quit another challenging market – Japan – and set out plans to invest GBP1bn in revitalising its UK business.
Nevertheless, as calls to quit the US persisted, Clarke said Tesco would continue with its Fresh & Easy chain in the US, although it decided to not open as many stores as it had planned.
However, a few weeks on, Clarke has now decided to look at Tesco’s options for Fresh & Easy, which remains in the red.
“Having assessed its long-term potential, we’ve concluded that Fresh & Easy is not going to achieve the scale and profitability it needs in a reasonable timescale. That’s why we’re starting the review we’ve announced today, and my aim is to provide an update on progress with our full year results in April,” Clarke said.
“As chief executive of Tesco, I have to focus on those markets which can deliver the high returns which our shareholders rightly expect. Where they don’t, it’s my job to take action, as I did when we pulled out of the Japanese market earlier this year. These decisions aren’t easy, but making the tough calls at the right time is a vital part of the chief executive’s job.”
Tim Mason, the CEO of Fresh & Easy, as well as Tesco’s deputy CEO and chief marketing officer, is to leave the retailer after 30 years with the company.