Tesco - Losing Ground in the UK
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Case Code: BSTR421 Case Length: 19 Pages Period: 2006-2012 Pub Date: 2013 Teaching Note: Not Available |
Price: Rs.500 Organization: Tesco Plc. Industry: Retail Countries: UK Themes: Business Strategy, Business Environment |
Abstract Case Intro 1 Case Intro 2 Excerpts
Trouble in Store
Tesco Plc. (Tesco), the largest retailer in the UK and the third largest retailer in the world, announced that for the financial year ending February 25, 2012, profits from its UK operations had fallen by 1% while underlying sales had dropped by 0.9%. The margins fell from 6.14% the previous year to 5.79%. This did not come as a surprise, as Tesco had already issued its first profit warning in 20 years in January 2012. From being the third largest retailer in the UK, Tesco had gone on to become the third largest retailer in the world.
This was the result of the strategies it adopted like stocking a wide range of private label products, going in for aggressive expansion, using consumer data to provide customized discounts, etc. The UK was the most important market for Tesco, accounting for over two thirds of the company's annual sales.
However, its performance in the UK started to dwindle in the late 2000s. In the wake of the recession that started in 2008, penny-pinched shoppers opted for the better deals provided by hard discounters. Customers who were looking for good quality, shopping experience, customer service, and reasonable prices, moved to competitors complaining that Tesco's stores were jaded and that its customer service levels were abysmally low. Analysts said that this was due to the company's years of underinvestment in its UK operations and the reduction it had effected in the number of staff in order to cut costs. They also pointed out that Tesco had concentrated on funding and expanding in international markets and had failed to maintain its focus on the UK market. Darren Shirley, an analyst at Shore Capital, said "The general consensus is that three or four years ago, they took their eye off the ball in the UK and started to focus on overseas.... Some of the profitability and cash flow was diverted from the UK and service standards slipped; hence their stores have become quite sterile, dull, and clinical." Though Tesco remained the top retailer in the country, it started losing market share and the same store sales showed a decline...
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