Tesco’s Value Plummets £5bn After Dismal Christmas

Jan 13 2012 --- Tesco is set to re-evaluate its future strategy after its worst Christmas in memory.

Shares in the company were down by 16% after disappointing sales during the key period for retail. It is anticipated that the company is going to issue its first fall-in-profit warning for more than 30 years.

 

The failure has been blamed on many shoppers choosing to buy at rival chains during the most important trading weeks of the year.

 

Tesco's total sales grew by a slim 1.7%, excluding petrol. Net new space performed well, contributing 3.0% growth, but like-for-like sales growth – at (1.3)% including VAT and excluding petrol – was below expectations and disappointing, particularly when contrasted with difficult weather conditions during the same period in 2010.

 

Philip Clarke, the current Chief Executive said "In a challenging economic environment, we made good progress internationally but despite record sales, we are disappointed with our seasonal trading performance in the UK.”

 

The sales setback is attributed to the company’s flagship Christmas promotion ‘The Big Price Drop’ not proving as compelling as the promotions offered by rival supermarkets, or even the company’s own previous ‘Double Clubcard Points’ promotion. 

 

Market Analyst consensus is that Tesco’s seasonal emphasis on value and low prices did not chime with consumers, despite the current economic climate. Retailers that emphasized quality and luxury over the Christmas period, such as Sainsbury’s and Marks and Spencers, performed particularly well.

 

The rise of online shopping in the electrical and clothing markets has meant that the non-grocery side of Tesco’s business is also threatened.

 

In light of the sales difficulties Tesco plans to scale back the construction of its Tesco Extra ‘hypermarkets’ and instead re-consolidate the floor space that it already has. Clarke said that Tesco’s plan for 2012/13 will be “reduced levels of capital expenditure as we modify our approach to UK expansion.”

 

The disappointing performance has also raised doubts about Tesco’s future international expansion plans. Their core UK Supermarket business bankrolls the company’s efforts to establish itself in markets such as America and China.