As Tesco reports a drop in UK sales, has the retailer been pursuing the wrong strategy?

YES

Richard Perks

“Retail is detail” and Tesco has been getting too many of the details wrong – poor quality, bad service, tired stores and an inept marketing function that couldn’t cope with Asda’s price guarantee. Very basically, Tesco has been using the UK as a cash cow to provide funds for development elsewhere. But, the retailer has not done serious damage to its UK business and it is taking the right decisions now to turn the business round. That will take time – far longer than investors realise. But it’s good news that these figures weren’t worse, as they could well have been given the challenging retail environment. It’s true that we would like to see Tesco drop Clubcard and make better use of the funds that would generate, but it has done what any great retailer should be able to do – admit its mistakes and come up with solutions.

Richard Perks is retail director for Mintel.

NO

Freddie George

We believe that Tesco is still a strong business, with an unassailable market-leading position in the UK, that has temporarily come off the rails. Management, in our view, should not change its strategy significantly, either in the UK or overseas. It makes sense for Tesco to invest more in service and in its ranges, particularly in fresh produce, but we do not believe management should be forced into selling overseas operations or its banking subsidiary. Nevertheless, it is hard to see anything other than pedestrian earnings growth from the company over the next three years. UK profits are unlikely to grow, while the company has to invest in its proposition to defend its market share. Tesco’s overseas operations, which still only account for around 25 per cent of operating profits, will not significantly move the dial.

Freddie George is a retail analyst at Seymour Pierce.