Tesco: Every Little Helps…
27 April 2015 by Lucinda Stacey
The recent news that the supermarket giant Tesco has made a £6.4 billion loss may not come as a surprise to many of you. With competition from Aldi and Lidl, the leading supermarkets have been feeling the pinch to keep up with lower prices. Tesco’s new chief executive, Dave Lewis, has undertaken the “kitchen-sinking” strategy which results in Tesco reporting the worst results in its history at the same time rather than revealing them over an extended period of time. This strategy is commonly used by political parties and businesses. The company is also currently being investigated by the Serious Fraud Office (SFO) after it overstated its half-year profit forecast in August by £263 million.
Although this is the biggest loss suffered by a UK retailer, around £4.7 billion of the losses were a result of the fall in property value of its UK stores, 43 of which closed earlier this month and the 49 planned stores have now been cancelled. This decline in the value of its property portfolio comes as a direct result of the falling footfall in many of it’s out of town superstores. Tesco chief executive Mr Lewis commented that “the results we have published today reflect deterioration in the market and, more significantly, an erosion of our competitiveness over recent years.” Morrisons also took a £1.3 billion charge corresponding to the falling value of its properties.
Whilst the losses which have emerged are great, they were also expected. The revaluation of the 3000 UK supermarkets and its stores overseas together with value of sales being down and shoppers staying away from the larger out-of-town superstores, meant that when the losses were added together, the result was great. Tesco has also had problems from its European stores as a result of “strong competition from discount retailers” which held back its sales performance.
Analysts have speculated that Tesco might do a deal with Sports Direct under which the sports retailer would open concessions within Tesco supermarkets. This attempt comes after the finding that accordingly, 20% of the retail space is “underused”. The group has shut its final salary pension scheme and also plans to save £250 million a year by shutting its headquarters in Cheshunt. It has also agreed a contribution of £270 million a year to its pension fund after a valuation revealed a deficit of £2.8 billion at the end of March.
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