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GUARDIAN Sun, 15 Jan 2012
We only need to look back a few years to find a chain facing problems of the kind now confronting Philip Clarke at Tesco
Does this ring a bell? Retailer smashes UK profit records, boosted by expansion overseas and years of unbroken success. Its grammar-school-educated chief executive is hailed as the finest shopkeeper of his generation and awarded a knighthood. After more than a decade of leadership, our hero bows out in glory. One of his lieutenants is promoted amid rumblings of discontent among rivals.
Within months, the company issues a profits warning, the first anybody can remember. The shares plunge and the new boss says mistakes were made in Christmas trading. The company is soon exposed as under-invested: its stores are seen as shabby, its products mediocre and its service indifferent.
Yes: it's Marks & Spencer, just before the turn of the century. M&S profits peaked at £1.2bn in 1998 and few anticipated the chaos that followed Sir Richard Greenbury's departure the next year. Is Tesco next? Will the later years of Sir Terry Leahy's long reign now be reassessed as the period in which Tesco lost its touch? Will the story of the M&S decline – years of boardroom infighting and strategic stumbles – be echoed in Cheshunt?
It's impossible to know, of course. Today it still seems absurd to think that Tesco could be knocked off its perch as comprehensively as M&S was. But, remember, at the time, M&S's difficulties were also presented as surmountable. In that famous profit warning in January 1999, Peter Salsbury, Greenbury's hapless successor, blamed over-ordering of stock before Christmas. Philip Clarke, Leahy's successor at Tesco, also pointed out a tactical mistake last week – a failure to react to rivals' discount coupons.
There is, however, one big difference between Salsbury and Clarke: the Tesco man is being explicit about its "longstanding business issues", as he described them. Quality, range and service needed to be improved, he said. On the principle that recognition of a problem is the first step towards a cure, Clarke is ahead of the plot. In M&S's case, it arguably took until 2004, and the arrival of Sir Stuart Rose, before it fully confronted its malaise.
So far, so good, from Clarke's point of view. But modern-day Tesco is a far more complicated machine than M&S circa 2000. It operates in 14 countries and employs 492,000 people. M&S's overseas distractions in the old days look tiny compared with Tesco's empire today. The UK still accounts for two-thirds of Tesco's profit but Clarke cannot afford to dedicate 100% of his energy to the troubles at home. The group has poured £700m into US startup Fresh & Easy, yet the future of that bold adventure is not secure. New fires could also break out: Tesco has 200 stores in troubled Hungary.
Meanwhile, the rules of retailing are changing. Growth in online shopping has exploded and Tesco's big-box hypermarkets, stuffed with electrical goods, garden equipment and clothing as well as food, suddenly look like a solution to yesterday's problem. Even Clarke says he wouldn't want many more. By contrast, M&S' property problems look straightforward in retrospect – it had too many small shops and its big stores needed new escalators, better lighting and paint.
But surely, it might be said, Tesco cannot possibly suffer the disastrous rounds of management upheaval that affected M&S in 2000-04. True, it probably won't. But nor can the top line at Tesco be described as settled. Andrew Higginson, former finance chief who now chairs Tesco Bank, is departing in search of the chief executive job he didn't clinch at Tesco. David Potts, another contender after 39 years at the company, is also going. The first outsider in the chairman's seat, Sir Richard Broadbent, is a new arrival.
Meanwhile, Tim Mason is chief executive of Fresh & Easy, but Clarke has handed him the extra titles of deputy chief executive and chief marketing officer. That's a lot of hats to wear in California – a..
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GUARDIAN Sun, 15 Jan 2012 00:01:06 GMT
The market leader's first stumble in two decades exposed deep problems with its strategy of building giant out-of-town stores
Naturally, it wasn't supposed to be like this. When Sir Terry Leahy passed the Tesco leadership baton to Philip Clarke last year, the succession planning was described as "perfection" and investors sat back for another decade of financial success.
Instead, Britain's biggest retailer is reeling after its first profit warning in 20 years. About £5bn was wiped off the company's stock market value after the retailer confessed that its UK chain, which generates more than 60% of group profits, had been wrung dry to fund the creation of Tesco's global empire.
The chain's Christmas sales were the worst in decades and Clarke said Tesco needed to sort out basics like fresh food, product ranges, customer service and staffing levels, to win back shoppers who had defected to Sainsbury's and Waitrose, and even no-frills chains Aldi and Lidl, for their turkeys and sprouts.
Things were so bad Clarke quoted Nietzsche's "what doesn't kill us makes us stronger" as he briefed reporters. It was not about the Big Price Drop, the £500m price-cutting campaign that had failed to cut through a "noisy" market. No: the retailer had to tackle "long-standing business issues".
It was all so different last year. When Clarke took over, he said: "My job is to build on the terrific legacy I have inherited … that does not mean sweeping changes, a year zero."
Well, the clock was reset last week, with Clarke earning a seat in the Tesco hall of fame, albeit for the wrong reasons. The 16% fall in Tesco's shares was bigger than that recorded on Black Monday; Evolution Securities analyst Dave McCarthy has dubbed it "Tesco Thursday". He says: "We suspect that when investors look back, they will view this day as the day the market recognised the fundamental changes that are taking and have taken place. A profit warning is the last sign of a company in trouble — and they usually come in threes."
McCarthy adds: "Tesco admitted for the first time that it has long-standing problems around range, quality and service. It has slashed wage bills to try to preserve profits and that, like pushing prices up, is a short-term fix at the expense of future profits."
Over the past five years Tesco has increased the productivity of its UK store staff to record levels. The average number of full-time employees in a 40,000 sq ft superstore has fallen from 275 to 226. Kantar Retail analyst Bryan Roberts says the slide in store standards was evident in everything from the queues at the checkouts to customers carrying their groceries home in plastic cones designed for fresh flowers because the carrier bags had run out. "They probably cut too much from store budgets and service has declined. Grocery shopping doesn't have to be a traumatic ordeal. It can be a fun, engaging thing to do."
Of course, Tesco is not going bust. The supermarket made profits of £3.7bn on nearly £68bn of sales last year. The City was shaken only by the absence of profit growth forecasts when it had already punched 10% into its computers. But there was also another bombshell. Clarke was not sure Tesco needed any more of the sprawling out-of-town Extra stores it has spent so long battling planners to build – and that were vital in its conquest of Britain's retail sector in the 1990s. He didn't want to go as far as to label its more than 200 out-of-town hypermarkets as "white elephants" but said they were now a "less potent force" as electricals and clothing sales shifted online.
He has a point, but as all its rivals have followed it out of town, it was a shock for the sector to hear. As Alan Parker, the City grandee trying to rescue Mothercare, put it succinctly last week: "The whole retail market is restructuring at the moment, away from bricks and into clicks."
Tesco has also been hurt by stronger competition. After periods in the wilderness, both Sainsbury's and Morrisons are.....
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GUARDIAN Sun, 15 Jan 2012 00:06:14 GMT
Yes, Antony Worrall Thompson was wrong, but why not employ more people to serve him?
Poor Tesco. Profits down 16%; £5bn wiped off the value of the company. A packet of cheese and some onions gone mysteriously AWOL from its Henley branch. Oh, how the heart bleeds for chief executive, Phil Clarke, who, after a shareholder rebellion in June last year, was forced to limit his pay packet to a maximum of just £6.9m this year.
For who can't feel a twinge of sympathy in their hearts for the lovable corporate behemoth? Apart from the nation's pig farmers who protested outside Tesco's AGM last year that the supermarket had squeezed them so much, they were now subsidising them to the tune of £10 a pig, perhaps? Or the whales and dolphins that Tesco's subsidiary company in Japan sells as a tasty snack? Or the nation's wind-blasted high streets empty bar the occasional piece of tumbleweed?
In fairness, Tesco is simply applying the logic of early 21st-century capitalism. This, as eagle-eyed viewers of The Apprentice know, works roughly like this: take any old crap and then charge as much as you can possibly get away with for it. Or ideally more. In this, the episode in which one of the teams was charged with making sandwiches and used tuna so cheap that it had the texture and appearance of cat food, causing unsuspecting diners across the City of London to gag and make vomiting noises, is quite instructive. They won. Alan Sugar congratulated them for their initiative and enterprise.
That's capitalism. Just as cutting open women and inserting exploding bags of industrial-grade silicone into their breasts, and charging them handsome sums of money for it, is too. As is sacking all your check-out staff and outsourcing the labour to your customers. Industrial-grade silicone is cheaper than medical grade, after all. And may not cause cancer. And having no staff at all and letting your customers flail helplessly with unauthorised items in the bagging area is significantly cheaper than having lots. So what if breasts explode and shoppers despair? It's simply called increasing your margins.
So who can blame Antony Worrall Thompson who was caught after self-scanning? That was all he was trying to do. The small technicality of the law aside, is there really so much difference? On one occasion, he said last week, he paid Tesco £180 for three cases of champagne and then stole £4 worth of goods. His margin, admittedly, was pathetic. It's the kind of derisory profit line that would make shareholders laugh and point. But it was just a margin, not the Great Train Robbery. Or the Royal Bank of Scotland's balance sheet.
Worrall Thompson broke the law. But in other circumstances, if he was, say, a limited company and Tesco was, for example, a single mother, from whom he'd successfully managed to make an extra 31p profit, then there'd be no case to answer. Making money out of poor people is what we call "business".
Besides, we expect companies and corporations to rip us off. To overcharge us. To pass off substandard goods if they can get away with it. To pay their chief executives more money than existed in all of ancient Rome and have BBC programmes endorsing the sale of cat food sandwiches as simply sound commercial sense.
We've all experienced that startled moment of horror when we've done something rash, such as catching a train at rush hour. Or using our phones abroad. Or buying a cup of tea at a motorway service station. (Unit price, what? Maybe 2p? Sale price? £2.75. I'm a rubbish capitalist and can't do the sums but isn't that something like about 20,000% profit?)
Morality is a tricky business in the marketplace, especially now. When companies can't pay their debts, they go bankrupt. Or ask the government for a bailout. American financial writer James Surowiecki points out that American Airlines went into administration not because it couldn't afford to pay its debts but that it'd be "foolish" of it to waste more money doing so. By........
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GUARDIAN Fri, 13 Jan 2012 20:56:28 GMT
The concerted attempts by the French establishment to persuade S&P, Moody's and Fitch that Britain was more deserving of a downgrade have fallen on deaf ears
It had all been going so well for the euro before the curse of Friday the 13th struck. Spain and Italy had held successful bond auctions, the Greeks were holding fruitful talks with their creditors, the pressure from the financial markets was abating. There were the first whispers, with fingers firmly crossed, that a turning point had been reached in the crisis that has blighted the single currency for the last two years.
But around lunchtime rumours surfaced that the ratings agency S&P had chosen this singularly inappropriate moment to detonate the bomb that has been waiting to go off for the past five weeks – a debt downgrade of eurozone countries. The fact that the story was datelined Berlin was significant: this was a German source leaking the fact that Europe's most powerful economy was not on the list of shame.
France, though, has lost its coveted AAA status, leaving the state of play in the Anglo-French war of the rating agencies as David Cameron 1 Nicolas Sarkozy 0. The concerted attempts by the French establishment to persuade S&P, Moody's and Fitch that Britain was more deserving of a downgrade have fallen on deaf ears. France will be inconvenienced by having its debt status reduced by one notch but the real effects will be psychological and political.
For Sarkozy, months away from a presidential election, the news that France is being downgraded but Germany and the UK will remain AAA is nothing short of disastrous. Cameron should not be too smug, though. If, as looks entirely plausible, the UK economy is going backwards it will only be a matter of time before the rating agencies contemplate a downgrade on this side of the Channel.
There will, of course, be economic consequences of the S&P decision – most, if not all, of them deleterious. Europe's bailout fund for troubled single currency countries, the European Financial Stability Facility, relied on the AAA status of France for its own top-notch rating. The French downgrade means an EFSF downgrade, which will make it more difficult and more expensive to raise funds from financial markets and sovereign wealth funds.
Unsurprisingly, the European Central Bank was active in the bond markets on Friday afternoon buying Italian debt. One consequence of the downgrade rumour was that Italian bond yields – the interest rate Rome has to pay on the money it borrows – started to climb back towards 7%, but the ECB's intervention capped the rise. Further upward pressure can be expected next week.
Business and consumer confidence, already at a low ebb, will take another hit. The eurozone is already on course for a nasty double-dip recession this year: that downturn is now likely to be that bit deeper and longer.
On the foreign exchanges, the euro fell sharply against the dollar to a 16-month low, providing the one silver lining because a cheaper currency will be a boost for Europe's exporters.
With the global economy slowing, that will not be enough in itself to generate the growth necessary to reduce budget deficits and thus satisfy S&P and the others that eurozone nations are licking their public finances back into shape. An unsustainable mix of austerity, slow growth and rising debt means that this will not be the last downgrade seen in 2012, and although Germany emerged unscathed this time it too will come under scrutiny.
Why? Because Germany's export-led growth is vulnerable to a slowdown in the rest of the eurozone, and Berlin will now come under even more pressure to sign the cheques needed to keep monetary union in one piece. The knowledge of what has happened to Sarkozy will make Angela Merkel even more wary about doing anything that could trigger a German downgrade, and she will take an even more uncompromising approach in negotiations with countries seeking bail-out funds.
There could be some fun.....
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GUARDIAN Fri, 13 Jan 2012 21:00:02 GMT
Tesco's poor results have led it to review its practices. The self-service tills used by Wozza may be a good place to start
Sad news for Tesco, which this week discovered an unexpected item in its bagging area. The rogue element has since been identified as "awful Christmas sales and a profits warning", and the company's chief executive Philip Clarke now appears to be having problems removing this item before continuing with Tesco's hitherto unstoppable rise. I do hope he has to wait a long time for assistance.
Britain ceased to be a nation of shopkeepers some time ago, as the local independent stores had the life bled out of them by the supermarket giants. But we're a nation of shoppers, and perhaps this two fingers to the daddy of them all is our retail version of the Arab spring. Watching the suddenly humble Clarke promising to address product quality, customer service and "longstanding business issues" rather put one in mind of a besieged dictator. "Wait!" is the despot's reaction to increasingly volatile protests. "I am literally just about to introduce a raft of democratic reforms!"
It will take rather more than Clarke's needy mea culpa to reverse the perception that Tesco stands for everything that is monolithic, mercilessly expansionist, and machine driven. Tesco is a place that people more principled than myself probably manage to avoid entirely, but into which most of us feel compelled to go fairly frequently because it's nearby, or because it has effectively shut down any alternatives.
For a long time, criticism of it was crushed by that pat little assertion that it was "what the people wanted". Tesco executives and their defenders appeared to be graduates of the Richard Desmond school of debate, which is to paint anyone who questions your methods as snobs or enemies of enterprise. They acted as if everyone criticising Tesco must have the luxury of shopping at Waitrose or M&S, when this week's evidence has revealed that they might just as easily get their goods at Aldi or Lidl.
Thus the unthinkable has happened. And now that Tesco appears to be not so much what the people want, what precisely does it have going for it?
Its expansion has certainly told us little we did not already know about this septic isle, merely throwing into even sharper relief the iniquities of such institutions as council planning departments. Countless ordinary citizens have tales of their applications to make minuscule home improvements being rejected, while mock Tudor Tesco superstores are waved through with as many clock towers and metal-effect weather vanes as their architects care to spike them with. Since the 90s, 200 have been plonked down like spaceships, pulling customers off high streets with their seemingly irresistible tractor beams. Yet we now discover that these behemoths are among the "less potent" parts of Tesco's enterprise. Whether scarcely 15 years of rapacious profits was worth leaving a blight of potential white elephants scattered across the countryside, only time will show.
But it is in the area of employment, and its effect on customer service, that the Tesco modus operandi has been most pernicious. There are few sights in modern retail more pathetic, in the true sense of that word, than that of the lone, low-paid human charged with overriding technical glitches in the banks of self-service tills that have already claimed the jobs of countless check-out assistants, knowing that they will soon enough claim theirs. (Eighteen months ago, Tesco began trialling a stall with no manned checkouts at all, merely the single overseer.) Given the Japanese government is investing heavily in technology that could provide robot care for the elderly, it seems a likely bet that Tesco hopes one day to have its shelves robotically stacked, and even the automated till supervisors replaced by customer service droids. A similar process of dehumanisation has been afoot in car plants, but few of us have the occasion to pass........
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WSJ Fri, 13 Jan 2012 20:56:23 EST
S&P removed France's prized triple-A long-term credit rating, downgrading it and Austria to AA+. It also cut the ratings of Italy, Portugal, Spain, Cyprus, Malta, Slovakia, and Slovenia, and warned of future cuts, saying policies to address the debt crisis may be insufficient.
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