retail news in context, analysis with attitude

Bloomberg reports that Tesco CEO Dave Lewis has announced a series of moves designed to help drag the troubled company out of the crisis in which it has created for itself through a series of profit warnings and an accounting scandal linked to an overstatement of revenues and an understatement of costs as a way of making its books appear healthier than they were.

Lewis said this morning that Tesco will close 43 of 3300 British stores, saying they are unprofitable with little likelihood of turning around. In addition, the company will cut its 2015 capital budget to the equivalent of $1.5 billion (US), less than half the 2014 figure.

And, the story says, "Lewis said he’s also scrapping a number of store-development projects as part of a 'significant revision' to the grocer’s expansion plans as it focuses on the fastest-growing areas in food retailing -- online and convenience stores ... The CEO will also end decades of history by moving Tesco’s head office about 15 miles to the grocer’s site in Welwyn Garden City, southeast England. Tesco has been based in Cheshunt since 1973."

Changes to Tesco's management structure are designed to eventually save the company the equivalent of $350 million (US) a year.

Bloomberg writes that "The grocer also announced the sale of the unprofitable Blinkbox movie-streaming service to TalkTalk Telecom Group Plc for an undisclosed price. The divestments are the 'first steps in strengthening the balance sheet,' Tesco said, leaving open the possibility of further disposals. Some analysts said they expected sales or partial spin-offs in Asia, though Lewis said he was committed for now to keep 'all operations we have overseas'."

One of those divestitures is likely to be its Dunnhumby data-analytics business, which could be worth as much as $3 billion (US); it also is possible that Dunnhumby could be spun off in an IPO. Goldman Sachs has been hired to “explore strategic options” for Dunnhumby.

The Bloomberg story also says that Tesco has named Matt Davies, CEO of car parts retailer Halfords, "to run its U.K. business and lead a revival amid a competitive onslaught from German discounters Aldi and Lidl."

Same-store sales at Tesco's UK stores were down 0.5 percent during the Christmas season; while the numbers were down, the performance was a lot better than during the previous three months, when same-store sales were down 4.4 percent.
KC's View:
Still lots of work to do, but it sounds like a beginning. Closing 43 out of 3300 stores doesn't sound like such a big deal, but I suspect it probably is just the beginning.

I also think it seems likely that there will be more repercussions from the accounting scandal. It isn't just money ... there are real questions about the Tesco culture that appears to have countenanced the kind of misstatements that were being made. And those may be harder to deal with than a few unprofitable stores.