Another blow for Tesco as sales slide 2.2%

Chief exec Philip Clarke is blaming the horsemeat scandal and falling sales in consumer electronics - but the problem could be more endemic...

by Emma Haslett
Last Updated: 28 Nov 2013

Could this be the beginning of the end of the Tescopoly? The supermarket has published another less-than-positive set of results, showing that like-for-like sales excluding petrol and VAT during the three months to the end of May have dropped by 2.2%. That drop is driven, reckons chief exec Philip Clarke, by a fall in non-food sales and sales of chilled food as consumers got a bit ‘ick’ about ready meals following the horsemeat scandal.

It’s disappointing but not unexpected: in April, it announced that pre-tax profits for 2012 had dropped by a pretty impressive 51%, from £4bn to £1.96bn, thanks to, among other things, its £1.2bn exit from its US business, Fresh & Easy.  
 
Nevertheless, the detailed report makes for grim reading: in the UK, like-for-like sales excluding VAT and petrol dropped by 1%, down from a 0.5% growth in the previous quarter. In Asia and Europe, like-for-like sales dropped by 3.8% and 5.5% respectively.

To be fair to Tesco, nothing’s easy for retailers at the moment. A report by the British Retail Consortium this morning shows that shop prices fell for the first time in three and a half years during May, meaning conditions on the high street are getting harder.

But for things to go this wrong at the UK’s largest retailer – and the world’s third-largest supermarket group – suggests it’s more than just the economy having an impact. Having invested £1bn on recruiting extra staff, relaunching its own-label products and changing the look of its stores, it still doesn’t seem to be able to claw its way out of the quagmire.

So what needs to change? In Tesco’s statement this morning, chief exec Philip Clarke (who is, incidentally, this month’s MT cover star) suggests Tesco has ‘a ‘disproportionate exposure’ to consumer electronics. The business, he says, needs to shift ‘from low-margin, low-growth categories’ like electronics to ‘higher-margin, higher-growth categories’. In the next few months, Tesco will launch a ‘new core range of general merchandise’ – that’s anything you can buy instore which isn’t food. A spokesperson hinted to MT this morning that that might mean extra space given over to Tesco’s F&F clothing range.

Of course, this all needs to be put into perspective: given what’s going on elsewhere in the economy, a 1% fall in sales isn’t the end of the world, particularly for a retailer as big as Tesco. Clarke, though, is going to need his wits about him: since his predecessor Sir Terry Leahy’s departure, things at the supermarket seem to have begun to slide. As the figures get worse, it’s going to become increasingly difficult for him to prove himself.  

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