Tesco pins UK turnaround on price cuts and store revamps

Tue Feb 25, 2014 3:57pm EST
 
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By James Davey and Neil Maidment

LONDON (Reuters) - Britain's Tesco (TSCO.L: Quote), the world's third-largest retailer, is to cut prices as it relaxes its view on operating margins and steps up its store revamp program and investment in online and convenience channels.

Outlining his plans at an investor and analyst seminar on Tuesday, Chief Executive Philip Clarke said the measures accelerate a turnaround plan aimed at countering increased competition in the British retail market, but which has so far failed to boost its languishing sales.

"This doesn't signal a need for a new strategy, simply to go faster," Clarke said.

He effectively abandoned Tesco's target for a UK operating margin of 5.2 percent, the highest in the industry, by saying "the margin will be what the margin will be."

At a later media briefing Chief Financial Officer Laurie McIlwee said the firm would not be giving a new target because of uncertainties in the grocery market due to more competition and structural changes.

"If I was to give you a margin it would be a false sense of precision. We need the space to operate, we don't want to be backed into a corner," he said.

While not signaling a return to the "pile 'em high, sell 'em cheap" mantra of Tesco founder Joseph Cohen, sacrificing the target signals that Tesco will make less profit from its revenue as it chases higher sales volumes with lower prices.

In common with Britain's three other leading grocers - Wal-Mart's Asda (WMT.N: Quote), Sainsbury's (SBRY.L: Quote) and Morrisons (MRW.L: Quote) - Tesco is being squeezed between the hard discounters Aldi ALDIEI.UL and Lidl LIDUK.UL and upmarket grocers Waitrose JLPC.UL and Marks & Spencer (MKS.L: Quote), losing market share.   Continued...

 
A man pushes his shopping trolley into a Tesco store in Hammersmith, west London October 3, 2012. REUTERS/Paul Hackett