Britain’s biggest retailer Tesco managed to halt an 18-month slide in its sales, but the billion pounds it is spending to do so meant profits fell by more than 10 per cent in the first half, the first decline in 20 years.
The company said the 0.1 per cent rise in underlying sales in the second quarter –an improvement from the 1.5 per cent fall in the first quarter – meant its costly plan to bring customers back by adding staff and smartening up its stores was working.
But hard economic conditions in both Britain and the foreign markets, where it aims to expand, means rough times still loom.
Tesco’s difficulties were underscored by better-than-expected sales figures at rival J Sainsbury, which, like other British grocers, has capitalised on Tesco’s troubles by promising to match its signature low prices.
Tesco is the world’s third-largest retailer behind France’s Carrefour and US leader Wal-Mart, and accounts for more than one in every £10 spent in British shops.
It stunned investors in January with its first profit alert in more than 20 years, and in April it launched its recovery plan to reverse a decline in UK market share to Sainsbury, Wal-Mart‘s Asda, Morrisons, discounters Aldi and Lidl, and upmarket grocer Waitrose.
“The changes are coming through at a pace ... and customers are starting to tell us they like what they’re seeing,” Tesco chief executive Phil Clarke told reporters. “Our first target is to be performing in line with the (UK) industry in like-for-like terms.”
In the five months since Clarke launched his fightback, the firm has recruited 8,000 more staff to give customers better service at its 3,000 UK stores, devoted more store space to food, given stores a warmer look and revamped food ranges.
It has spent more on money-off vouchers and marketing that makes use of customer information gleaned from its Clubcard loyalty scheme, and rolled out a new service to let online shoppers collect their orders at the store.
As a result of the new costs, first half group trading profit fell 10.5 per cent to £1.6 billion, and UK trading profit fell 12.4 per cent to £1.1 billion – both in line with analysts’ forecasts.
Tesco now earns nearly 40 per cent of its revenue outside Britain, but its outlook abroad is also worrying. Questions remain over its long-term commitment to US chain Fresh & Easy where it failed to narrow trading losses. Some analysts believe a humiliating retreat could be on the cards.