Tesco is to rein back on investment in areas including IT as it acts in the face of falling profits. The move may have implications for the supermarket’s strategy of focusing on multichannel retail, an area that outgoing chief executive Philip Clarke had made a cornerstone of his approach to ‘new retailing’. Speaking at the Guardian Changing Media summit, Clarke said of multichannel: “It’s about putting the customer in control, and enabling him or her to engage and transact with Tesco in whatever way best suits them – physically or digitally, transactionally or non-transactionally. This change is being driven by the consumer – the demanding connected, discerning 21st century consumer.”
Clarke’s replacement, Dave Lewis, starts work early, on Monday, with a brief to review “all aspects of the group in order to improve its competitive position and deliver attractive, sustainable returns for shareholders”. It seems it’s all up for change – and how Clarke’s multichannel strategy will fare remains to be seen.
The supermarket today warned that trading profit for the year 2014/15 would be in the range of £2.4bn to £2.5bn. Trading profit for the six months to August 23 2014 is expected to come in at around £1.1bn. As recently as July, analysts http://www.tescoplc.com/index.asp?pageid=31 had suggested a figure of around £2.9bn.
Ahead of the Lewis’ review, the supermarket said it would reduce its capital expenditure by £0.4bn to a maximum of £2.1bn. Reductions in spending would “particularly” come in areas including IT and in the slower roll-out of its store refresh programme.
This is the second retrenchment in capital expenditure that the company has outlined this year. In February it said that it would cut spending to a maximum of £2.5bn a year, to be achieved by reducing its plans to open new stores.
It’s not yet clear whether these latest cuts will hit its investment in multichannel retailing, something that outgoing chief executive Philip Clarke made a priority. When Tesco last February outlined how it would “win in the new age of retail,” it put the focus on multichannel leadership. It said its capital expenditure would be “even more focused on online and convenience growth and on an accelerated refresh programme for its larger stores”. Today’s statement makes it clear that store refresh programme will be slowed. How online will be affected remains to be seen.
Sir Richard Broadbent, Tesco chairman, said: “The board’s priority is to improve the performance of the group. We have taken prudent and decisive action solely to that end. Our new chief executive Dave Lewis will now be joining the business on Monday and will be reviewing every aspect of the group’s operations. This will include consideration of all options that create value for customers and shareholders.
“The actions announced today regarding capital expenditure and, in particular, dividends, have not been taken lightly. They are considered steps which enable us to retain a strong financial position and strategic optionality.”
