Bad News for Tesco at Home and Abroad

Posted on 5 December, 2012 by Kirsten Kennedy

For years now, Tesco has been a market leader in the UK but recently rival Sainsbury’s has made a bid for the retail giant’s crown, posting rising sales figures as Tesco sees customers jump ship for the first time in over a decade.Unfortunately, it seems that Tesco’s problems are not simply confined to the UK with American arm Fresh & Easy posting yet another quarterly drop in sales this week.

Tesco’s US venture is now under review

Analysts at Deutshe Bank have predicted a drop from 6.9 per cent in the second quarter to only 4 per cent in the third quarter in relation to like for like sales growth, comparing poorly to a 12 per cent increase during the same period last year. This further drop in performance means that, once again, Fresh & Easy is yet to post a profit.

Of course, this is not the first time the future of Tesco’s American venture has been the subject of speculation. In October, chief executive Philip Clarke put the brakes on any new store openings for the foreseeable future.

At that time Mr Clarke extended the target time for Fresh & Easy to make a profit to 2014. However, the company now appears to have conceded defeat as today it has been announced that US chief Tim Mason has resigned with immediate effect and a strategic review of the operation will commence. This is expected to lead to the sale or closure of the US Business.

Meanwhile, business is hardly booming this side of the pond, with Tesco expected to post a fall in like for like sales of between 0.5 per cent and 1 per cent for the 13 weeks previous to the 24th November. Although food sales are believed to have levelled for the retailer, categories such as clothing and electrical goods will have dragged sales down due to an increasing number of consumers choosing to buy online from specialist stores.

James Anstead of Barclays believes Tesco will try to gloss over the negatives and focus on the positive aspects of business when the third quarter trading report is released.

He says; “Although the negative numbers will make it difficult for Tesco to adopt a very positive tone, we expect it will try to focus attention on to the divergent performance of food and non-food.”

Tesco is currently in the process of implementing a £1 billion update for the UK arm of the business, which will examine and make necessary changes to store layouts and the food products sold there. 8000 additional staff will also be hired, and so far the plans seem to have gone down well with investors and market experts.

However, only time will tell whether the supermarket giant can once more beat off the rivals to remain Britain’s top supermarket chain.

 




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