“Tesco need to slash profit margins” – The London Economic

“Tesco need to slash profit margins”

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By Joe Mellor, Deputy Editor

The news that Tesco’s chief executive Philip Clarke is to leave the retailer in October, has given the business a chance to return to its roots, says a leading academic.

The UK supermarket giant said it would miss profit forecasts, leading to the change at the top of the business. He will be replaced by Dave Lewis of Unilever, even though Clarke has insisted he was “not going anywhere.” Mr Clarke, has led the firm since 2011.

Clarke had been pushing thorough a £1bn turnaround plan, but a trading update last month showed a 3.7% fall in like-for-like sales. Tesco said current trading had been “more challenging” than predicted and sales during 2014 were “somewhat below expectations.”

Business and retail expert from Birmingham City Business School, Professor Chris Edger said: “Tesco need to slash profit margins and get the business back to what it stood for at the start, when it was under the mighty Jack Cohen.”

Upon the announcement of the departure of Tesco Chief Exec Philip Clarke this autumn, Professor Chris Edger advises his successor to look at French retail giant Carrefour’s turnaround in the past year, to become the world’s second largest retailer after Walmart.

“Reduce the central cost-base of the business and invest in price. Current margins at over 5% are unsustainable” says Professor Chris Edger.

“The internet and value retailers (dime shops and ‘hard discounters’) will continue to rip into Tesco unless consumers perceive it is returning to its original purpose; providing ‘surprice’ for customers. Reduce central costs and invest in price – totally re-engineering the cost base of the business seems to be the only way to go.

“Investment in services and bolt-on offers is window dressing. They must get the core business – food retail sales – back into organic growth quickly!”

Mr Clarke said: “Having taken the business through the huge challenges of the last few years, I think this is the right moment to hand over responsibility.”

Tesco’s share price has risen since the announcement.

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