Abstract

In July 2014, Tesco Plc (Tesco), the largest retailer in the UK, announced a change in leadership. Dave Lewis (Lewis), head of personal care at Anglo-Dutch FMCG conglomerate Unilever plc. (Unilever), was appointed as the CEO in place of Philip Clarke (Clarke). Since its inception in 1919, Tesco had always had insiders at the helm. Lewis was the first outsider to lead it. Leaders like Ian McLaurin and Terry Leahy (Leahy) played a major role in transforming Tesco from the third largest retailer in the UK to the third largest retailer in the world. The initiatives started by McLaurin like revamping the stores, opening large stores, and introducing customer centric programs, were taken forward by his successor Terry Leahy, who became the CEO in 1997. Leahy was instrumental in introducing the Clubcard, which attracted several customers to the store and built loyalty. Under his leadership, Tesco made great strides and entered several international markets. After Leahy became CEO, he synchronized the company’s core values and strategy to take Tesco to the next level – these included building business in the UK, developing the non-food business, international expansion, and retail services. Under Leahy’s leadership, Tesco scripted success not only in the UK but also in several international markets into which it had ventured. In the year ending February 2009, it posted a profit of £ 3 billion, which was the highest profit ever recorded by a British retailer. In 2011, Leahy retired, handing over the mantle to Clarke, who was also a Tesco veteran. Clarke had been looking after Tesco’s international ventures. When he took over, Tesco, though a leading retailer, was staring at several problems. Its international ventures, especially the ambitious US venture ‘Fresh & Easy’, had not performed as expected and Tesco withdrew eventually from it, the economy in the UK was yet to come out of the grip of the 2008 recession – which brought in its wake several changes in the way people shopped in the UK, and Tesco stores began showing the results of years of negligence and underinvestment. To make things worse, Tesco’s customer service was poor and its product assortment unimpressive. This resulted in an exodus of customers – the price conscious moving to discount retailers like Aldi and Lidl, while the value-conscious moved to Asda and those who wanted high quality started shopping at Waitrose, Sainsbury’s, and M&S. Faced with these challenges, Clarke introduced programs like the ‘Big Price Drop’ in September 2011, cutting the prices of 3000 items. But this had very little impact on Tesco’s sales, which continued to dwindle. The much awaited Christmas season that year too proved disappointing for Tesco, with sales falling 2.3% for six weeks, forcing the company to issue a profit warning — its first in over two decades. In 2012, Tesco’s market share went below 30% — for the first time since 2005. In April 2012, Clarke announced a recovery plan that aimed at improving service and the stores themselves, delivering value, improving range and quality of products, and introducing new e-commerce plans and brand and marketing programs. Clarke planned to invest £ 1 billion in this initiative. But this did not improve Tesco’s fortunes either and in April 2013, the company announced its first fall in annual profits after 19 years. The post-tax profit fell by 96% to reach £ 120 million. The fall in profits was attributed largely to the US operations which were charged at £ 1.2 billion. The fall continued over the next few quarters, and in several international markets like Turkey, China, and the Czech Republic, Tesco’s performance started to dwindle. In 2014 too, Tesco’s market share continued to fall, and the company came out with another profit warning in July 2014. This was followed by an announcement that Clarke would be leaving Tesco. The new CEO, Lewis, joined the company in September 2014. Lewis had been with Unilever earlier and had no experience in the retail sector. Some analysts therefore questioned his ability to lead a retailer like Tesco, which was already beset with several problems. Others, however, opined that Lewis would be able to give Tesco a clear direction and strategy, which it had lacked in the previous few years. They also said that he would be able to rebrand Tesco and address issues pertaining to pricing, that would help the company compete effectively with other retailers who had slowly eaten into Tesco’s share. It remained to be seen whether Lewis would be able to provide the retailer with the leadership required to steer it ahead during such troubled times.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Examine the role of leadership in the organization – Transactional Vs Transformational
• Explore the managerial challenges that accompany rapid expansion and growth
• Sum up the characteristics of the retail industry in the UK
• Assess competition in the industry
• Determine the key success factors in the industry

Keywords

Tesco, UK, retail, recession, hard discounters, Philip Clarke, leadership challenges, Management style, recession, leadership styles, change, business environment, leadership challenges, leadership transition, strategy, retail in the UK