Humility comes more easily to Tesco's new chief

LONDON BRIEFING:The retail juggernaut's UK sales are down and boss Phil Clarke is vowing to do better

IT HAS been a long, long time since anyone could recall Tesco freely admitting it was less than perfect on any front, but yesterday the retail juggernaut presented a new, more chastened face to the City.

You could almost hear the collective intake of breath around the Square Mile as new chief executive Phil Clarke confessed that Britain’s biggest retailer had missed its own growth targets in the UK this year – and it wasn’t entirely the fault of the faltering economic recovery. “We can do better,” he said, promising corrective action in a number of key areas. Clarke took over from the redoubtable Sir Terry Leahy six weeks ago and such humility clearly comes easier to him that it would his former boss. But then Clarke really didn’t have much choice. While Tesco piled up annual profits of a record £3.8 billion (€4.3 billion) last year – more than £10 million a day – the figures confirmed that the lion’s share of growth is coming from its Asian operations.

In the UK, underlying sales in the fourth quarter dropped by 0.7 per cent excluding petrol and VAT, the first negative quarterly performance in two years. Despite the huge expansion overseas in recent years, the UK operation remains crucial to Tesco’s success, accounting for £2.5 billion of trading profit – up 3.8 per cent – and £44 billion of the £68 billion global sales total.

While not wholly responsible for Tesco’s sluggish UK performance, the consumer spending squeeze is taking its toll. For example, Tesco calculates that shoppers are shelling out an extra £18 a week in petrol costs, equivalent to a 7 per cent hike in basic rate income tax.

As for the self-inflicted difficulties, these include taking its fashion business too far downmarket in its eagerness to chase sales and generally taking its eye off the ball on the new product front.

The electrical goods business also missed Tesco’s own targets.

Turning round the performance in these areas is a top priority and Clarke is promising more innovation throughout the group and a sharpening up of its communication with customers.

Another problem area is the United States, where losses widened to a hefty £186 million. That certainly wasn’t in the Tesco script when it opened its first Fresh and Easy shops on the west coast in late 2007.

When Leahy outlined the group’s big US gamble, his vision was that the business across the Atlantic would ultimately grow to the same size as the UK. Clarke admitted yesterday that it has some way to go before justifying the substantial investment of both management time and shareholders’ money.

There was huge interest among Tesco followers in Clarke’s first solo outing in the City and every nuance of the results press conference was eagerly tweeted by those attending, from the colour of the tie he chose to wear (pink, as you asked) to the fact that he’ll do things differently from Terry (“I’m a different person”).

There was evidence of the more open approach that Clarke says he favours and the results statement certainly provided more detail than in the past of the world’s third-largest retailer’s vast operations.

Analysts and reporters came away with generally favourable impressions from their first results meetings with the new Tesco boss, with some analysts even suggesting he might have overdone the sackcloth and ashes routine. After all, one of the key reasons for building the overseas operation was to insulate Tesco from times of downturn in the UK and that’s exactly what happened last year.

As for the UK, it may have been two years since Tesco posted a decline in underlying sales but it still grew its revenues faster than the market as a whole.

As well as being more open in the future – he already tweets on @clarkepatesco – the new boss intimated he would like to see a softening of Tesco’s hard-nosed image.

But anyone expecting him to prove less driven than his predecessor will be disappointed. Clarke may have been in the driving seat for only six weeks but he is a Tesco man through and through. As a schoolboy, he stacked shelves in the store run by his father and, as he climbed through the ranks after joining the graduate training scheme in 1981, he worked closely with Leahy building the international side.

Clarke’s declaration that the UK business must do better is a wake-up call to any Tesco executives who’ve taken their eyes off the ball. And it should also send a shudder through the rest of the UK retail sector.

Fiona Walsh writes for the

Guardian

newspaper in London