Unsurprisingly, reactions to Tesco’s massive loss are coming in thick and fast. Here are a few samples of what the expert analysts have to say.
David Gray, Retail Analyst at Planet Retail
“This morning’s news of the biggest loss in decades at Britain’s biggest retailer comes as a result of a writedown on the value of its property portfolio. The simple fact is the value of out-of-town sites has fallen as openings have been mothballed. Although it’s been a disastrous year, Tesco is in effect cleaning out the closet - enabling management to start with a clean slate in 2015/16 upon which to rebuild the business.
“But, the picture isn’t all negative. Rarely have a new management team had such a rapid impact on UK trading, which reported its smallest like-for-like decline in some time in Q4. Range, availability, service and price perception are all understood to have improved under Dave Lewis and Alan Stewart. While concern remains over the state of the balance sheet, the more important metric of the actual health of the business, trading at the core UK unit is showing tentative signs of recovery.”
Robin George, Insight Associate Director at Added Value
“Although this is a huge loss, what we’re seeing is Tesco bottoming out. A lot of the hard decisions have already been made with the recent staff cuts and store closures. That said, the retail landscape has shifted and the draw of big superstores are a thing of the past. Shopping habits have dramatically changed so it’s not surprising Tesco is losing market share to discounters such as Aldi and Lidl.
”Tesco no longer has a better differentiator to entice customers to shop with them because others are delivering their promise better. Tesco has lost its purpose in the minds of consumers and it’s unlikely we’ll see Tesco regain the dominant position it once held anytime soon. To recover from its losses and become a loved supermarket again, Tesco needs to understand what consumers really want and be relevant to the shopping landscape of today and tomorrow.”
Simon Johnstone, Senior Analyst, Kantar Retail
“While Tesco looks like it’s on a downward spiral with another major dip in trading profits, its planned recovery strategy promises to steer the retailer back on course. A three-pronged attack to improve performance is centred on strengthening the balance sheet, repairing its reputation and rebuilding the brand.
“The supermarket giant has proposed further simplification of its property portfolio but it will also need to find a solution to its ‘over-spaced’ hypermarkets. Creating more collaborative spaces is key, and we expect to see more subletting initiatives to third parties, such as Sports Direct. Downsizing is essential – especially cutting loose any non-profitable aspects of the business.
“While sales performance is on the rise, Tesco’s brand is still in need of updating to appeal to UK shoppers who are now being actively courted by the discounters and encouraged to ditch private label brands to save money. Tesco needs to make a real connection between its marketing and its stores by going back to basics to deliver real value.
”With planned investments to increase staff in stores, better availability of products, a simplified product range and a lower and consistent message on price, shoppers could soon have a reason to return to Tesco – potentially heralding the revival of the supermarket chain.”
George Scott, Columino
”This is a gloomy headline from Tesco, with its bottom line profits at the pessimistic end of market expectations, underlining the scale of the task facing chief executive Dave Lewis. Its drop in trading profits reflects it broad competitiveness, which has been consistently weak in recent years, while its pre-tax loss is indicative of deeper structural challenges.
”However, this level of pain is something the retailer needed to go through to clear the decks and behind the headlines Lewis should be commended for his bullish approach in seeking a turnaround. This has led to some improvements in performance over its second half and is putting the retailer on a more relevant footing for future competitiveness.”
David Stoddart, analyst at Edison Investment Research
“Those who believe that ‘one swallow does not make a summer’ will have found little to cheer them within Tesco’s preliminary announcement. At £6.4bn, the statutory pre-tax loss was even worse than feared. Equally concerning was an underlying profit margin of only 1.4%. And the business is over-leveraged – hence the decision to curtail capex and axe the dividend. So the return of UK lfl volume growth in Q4 provides little reassurance. The statement is full of sensible sounding plans to focus on customers and simplify the business, but it is not the only player with recovery plans.”
John Ibbotson, Retail Vision
“If proof were needed that the retail world is changing, we just got it. This is the official end of the Tesco era. The irony is that Tesco is on the right path. Amid the extensive wreckage left by his predecessors, Dave Lewis has done all the right things, and made all the tough decisions, to put Tesco back on track.
“Lewis has delivered direction, reduced prices, cut costs, closed the Cheshunt head office and put more staff into stores. Most fundamentally, he has changed the retailer’s entire corporate philosophy. But there’s a long way to go yet before the agile new Tesco that is emerging becomes a profitable Tesco once again.
“And even when it does recover, it will never again be the force it once was. With this huge loss, the decadent retail dynasty of Tesco has come to an end.”
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