By Emma Haslett Tuesday, 19 April 2011

Tesco boss demands more 'sharpness' as sales fall in the UK

The supermarket's end-of-year results show even the world's third-largest retailer isn't impervious to the spending slowdown.

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Sounds like it’s been a tough first few weeks for new Tesco CEO Philip Clarke, who took over from Sir Terry Leahy in March. The company unveiled its full-year results this morning, and things aren't getting any easier in its core UK market: like-for-like sales (excluding petrol) fell by 0.7% in the three months to the end of February, after rising 0.5% in the previous quarter. Clearly this is a tough environment for all retailers - and Tesco's international strength (particularly in Asia) has still allowed it to ring up bumper revenues and profits across the group. But Clarke does seem to think Tesco needs to get its act together closer to home...

The results showed that in the UK, Tesco’s second half was significantly worse than its first, with a drop in like-for-like sales of 3.3% in the second six months of the year, compared with a 0.3% fall in the first six months. Clarke was quick to point to ‘a period of unusually subdued growth’ across the industry, which he blamed on ‘the impact of high petrol prices on customers’ discretionary spending in our stores’. So expensive fuel is part of the problem.

But he also said the supermarket needs to take action in ‘key areas’, suggesting Tesco has lost some of its ‘sharpness of communication to customers’. Today's statement sets out six ‘immediate objectives’ for its staff. They include (the admittedly rather vague) ‘keeping the UK strong and growing’; making Tesco ‘outstanding... not just successful’ on an international scale; becoming a ‘multi-channel retailer’ in all its stores; delivering more value from its banking arm; improving its ability to apply ‘group skill and scale’; and delivering a higher return for shareholders. No pressure, then.

Still, nobody should be predicting the demise of Tesco just yet. The company as a whole managed to boost underlying pre-tax profits by a whopping 12.3% to £3.8bn last year - which equates to more than £10m a day. Rather puts things in perspective, doesn't it? It also increased total sales by 8.1% to £67.6bn, driven partly by impressive 30% growth for its Asian operation.

So all things considered, Clarke probably doesn't have too much to worry about. OK, so the UK market is getting increasingly tough: shoppers are increasingly reluctant to splash the cash, and Tesco's rivals are raising their game all the time. But Tesco still accounts for about £3 of every £10 spent in the UK. And given its strong presence overseas, it's more cushioned than most from the effects of the UK slowdown.

Still, a bit of extra sharpness clearly wouldn't go amiss...

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