Bottom Line: Chop harder or prepare to face a descending axe

 
Marc Sidwell
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HOW quickly a giant can start to resemble a dinosaur. Tesco’s likefor-like sales in the first quarter fell by a shocking 4 per cent if you exclude VAT, petrol and vouchers, its worst drop in years. Embattled chief executive Philip Clarke says he’s determined to cling to his position, but it looks less and less tenable. With no end to the bad news in sight, there’s a real possibility that the nation’s biggest retailer is on the brink of a lost half-decade, with five more years until it turns things around.

When you lead your sector with a market share of 29 per cent, time may feel like the one advantage you have on your side. But the clock is ticking rather faster for Clarke, on whose watch Tesco has started to look less a titan of retail and more a lumbering leviathan condemned to be outevolved by the fast, hungry competitors nipping at its ankles.

The real problem remains Tesco’s perverse approach to price cuts. It is spending £200m on cuts, and points to a 28 per cent increase in volume for the lines where it has cut prices.

But as the sales figures show, all that extra volume isn’t making up for the deflationary cost. This is a strategy with high upfront pain and uncertain longer-term payoff.

In an age of discounters, Tesco needs to fight harder for quicker wins on pricing. Clarke’s going to need a bigger axe. Or shareholders will be taking one to him.

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