Tesco Chief Executive Dave Lewis is demonstrating the art of the subtle U-turn.
The UK's largest supermarket by market share is reportedly selling the Giraffe restaurant chain his predecessor Philip Clarke bought three years ago. Faced with fierce competition and excess store space, retailers need new ideas. And investors may have to put up with a few wrong turns along the way.
Buying Giraffe for £49 million in 2013 was supposed to make Tesco's big stores more attractive to shoppers. It turned out to be loss making. Tesco's large out-of-town stores are dwindling in popularity as consumers shop more frequently and more locally. Tesco has 43 per cent of its UK selling space in hypermarkets, according to Deutsche Bank research, making it one of the most exposed among its peers.
It's not the only one with this issue. Its rival J Sainsbury forecasts supermarkets' share of the total grocery spend will drop below 60 per cent by 2022, from over 80 per cent in 2007. Its £1.4-billion takeover of Argos owner Home Retail Group is a bid to reduce exposure to deflationary food prices and fill an estimated 1.5 million square feet of unproductive floor space. That bet is looking fairly smart. Sainsbury's general merchandise sales are growing faster than food and Argos' like-for-like sales are up 0.1 per cent in their respective first quarters.
Tesco has not given up on partnerships, but looks to have become more selective. It announced a deal with retail entrepreneur Philip Green's Arcadia in October to trial fashion concessions of its Evans and Dorothy Perkins brands in a number of Tesco Extra stores. That gives Tesco rental income and the halo effect of popular high-street names.
British grocers are grappling with prolonged food price deflation and competition from German discounters Lidl and Aldi. They are having to experiment with formats outside their food business comfort zone. But with operating profit margins hovering around two per cent, down from six per cent 10 years ago, there is less room for error. And it means that U-turns, when they happen, are best done early.
The UK's largest supermarket by market share is reportedly selling the Giraffe restaurant chain his predecessor Philip Clarke bought three years ago. Faced with fierce competition and excess store space, retailers need new ideas. And investors may have to put up with a few wrong turns along the way.
Buying Giraffe for £49 million in 2013 was supposed to make Tesco's big stores more attractive to shoppers. It turned out to be loss making. Tesco's large out-of-town stores are dwindling in popularity as consumers shop more frequently and more locally. Tesco has 43 per cent of its UK selling space in hypermarkets, according to Deutsche Bank research, making it one of the most exposed among its peers.
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Tesco has not given up on partnerships, but looks to have become more selective. It announced a deal with retail entrepreneur Philip Green's Arcadia in October to trial fashion concessions of its Evans and Dorothy Perkins brands in a number of Tesco Extra stores. That gives Tesco rental income and the halo effect of popular high-street names.
British grocers are grappling with prolonged food price deflation and competition from German discounters Lidl and Aldi. They are having to experiment with formats outside their food business comfort zone. But with operating profit margins hovering around two per cent, down from six per cent 10 years ago, there is less room for error. And it means that U-turns, when they happen, are best done early.