After exiting the US market following the collapse of its Fresh and Easy brand, Tesco has pledged to focus upon its core UK and European markets in an attempt to turn around the steadily worsening situation which has seen both profits and market share drop in many countries.
However, contrary to recent rumours, it has decided not to sell its network of Turkish stores and instead has launched a turnaround plan which Tesco hopes will see its Kipa arm reverse the trend for losses it has experienced in the past few years.
Although Tesco has recently held discussions with private equity group BC Partners regarding the possibility of a joint venture with the firm’s Migros chain, and also with Turkish retailer Anadolu, both of these plans recently fell through due to a lack of common interest. As a result, Tesco confirmed that it had “ended talks with various parties in respect of potential options for its business in Turkey”, and will instead attempt to raise performance of the Kipa chain by itself.
At present, Tesco’s Kipa business has more than 190 stores throughout 20 of Turkey’s largest cities, and employs more than 9,600 people in the country. It has also recently launched an online shopping service in Turkey, which has led analysts to speculate whether it will focus upon opening new distribution centres within the next year or continue to channel its efforts into its store growth.
Shore Capital analyst Clive Black believes that the failure to form a joint venture with an established Turkish retailer could prove to be a bad move for Tesco in the future.
He says; “We harbour a modicum of disappointment that Tesco has not been able to attract new local talent and capital into its Turkish business, which we felt may have been a more rapid and credible basis to improve the operating performance.
“We now watch with interest to see if an improvement in top line and bottom line performance can be achieved on a sustained basis from the Turkish operations, where store openings have also more or less ceased in line with virtually all of Tesco’s European regions.”
Fortunately, although Tesco’s UK business continues to struggle with analysts from Deutsche Bank forecasting a 4 per cent drop in like for like sales during the last quarter, the situation in Europe does seem to be improving. In the final quarter of the last financial year, sales grew by 1.7 per cent in Turkey, a huge improvement from the 15.5 per cent plunge recorded in the first quarter and possibly the reason for Tesco’s confidence in its turnaround plan.
In a statement, Tesco indicated that the plan will involve the closure of loss-making stores in the east of the country, continuing on from the nine closures in the last financial year.
It continued; “The efforts of the team in Turkey are already evident in a stronger customer offer and improved performance and there is more we can do to drive stronger cash generation and returns.”
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