Gareth Lofthouse | April 23rd 2012 | @MgThinking
Tesco remains a formidable retail player, but there’s no doubt it has lost some of its lustre in the past 12 months. While the company still has a 30% share of the UK market and expanding operations overseas, the outlook has been looking less rosy ever since the company issued a profit warning back in January.
Now the company has unveiled plans for its UK fightback. Chief executive Philip Clarke is investing £1bn to improve the look and feel of its stores and to offer a better choice of products. The company will also hire 8,000 new staff and train them to offer a friendlier service.
At heart, this is an acknowledgement that the company has fallen out of step with what its customers want. Clearly Clarke had to act, but the investment plan comes at some cost to the company’s near-term performance. Mr Clarke does not expect Tesco’s operating profits to grow in the coming year.
This comes as quite an admission from a retail powerhouse that is famed for its pioneering customer loyalty programme. Mr Clarke’s revered predecessor, Terry Leahy, devised the Tesco Clubcard that enables the company to study the shopping habits of up to 13 million British families. Armed with this formidable bank of data, Tesco can tailor its promotions and plan product lines and store layouts to reflect its customers’ every whim. It’s partly this capability that has enabled the supermarket chain to claim one in every eight pounds spent byUKconsumers.
That a slick operator like Tesco now find itself out of step with what its customers want speaks volumes. Big data and technologies to drive customer analytics are much hyped of late. If you’d expect anyone to know how to leverage these tools, it would probably be Tesco. The cliché is that retail is detail, but it’s also increasingly a science in which every aspect of what the store stocks, where it is displayed, and every twist and turn in the customer’s “shopping journey” is constantly studied and tweaked.
Unfortunately for Mr Clarke, some of Tesco’s rivals now look more attuned to what the UK consumer wants. Tesco’s tricks, not least those loyalty cards and targeted promotions, have been widely imitated. Recently, Sainsbury’s and Waitrose have done a better job at creating attractive, contemporary-looking stores – by contrast most of Tescos stores can look a bit Eastern Bloc. There is, of course, room for the “pile ‘em high, sell ‘em cheap” store, but in that domain there's stiff competition from the likes of Asda and Aldi.
The endless price wars between the big supermarkets will go on, but cheap offers don’t breed long-term loyalty. Recognising this, brick-and-mortar retailers everywhere are trying to transform a trip to the shops from a necessary chore into a pleasurable experience. Smart data should certainly help Tesco make the right decisions, but only when it’s paired with first-class execution and a genuine feel for what makes customers tick.