Tesco plans £1bn revitalisation

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18 April 2012

Supermarket giant Tesco has proposed to pump £1 billion into revitalising its business after conceding its UK stores were jaded and under-staffed.

Chief executive Philip Clarke said the retailer must raise its game as he unveiled plans to recruit an extra 8,000 staff, overhaul stores and put on more special offers. Significantly, the chain will slow the pace of expansion as it focuses on "improving the shopping trip" for customers at its 2,800 stores.

The strategy follows a recent profits warning - its first in 20 years - and a sharp slump in its share price as the City worries that Tesco's dominance seen over the last decade is about to end. Shares rose slightly on Wednesday but are still down 18% since its grim post-Christmas update saw £5 billion wiped from its value in a single day.

Philip Dorgan, a retail analyst at Panmure Gordon stockbrokers, said the plan looked coherent but warned that its success depended on Tesco "doing 1,000 things 1% better".

Himanshu Pal, senior Tesco analyst at retail insight business Kantar, added that Mr Clarke faced a daunting challenge but that his strategy was likely to help the market leader get back on track.

However, he said: "Those expecting an overnight recovery will be disappointed. It only takes one shopping trip to disappoint a customer, but it takes much longer to change perceptions and regain shoppers' trust."

With its share of the grocery market below 30% for the first time since 2005, Tesco said that its UK profits fell 1% to £2.5 billion in the year to February 25. However, strong growth in areas such as Asia helped overall profits rise to £3.9 billion.

Mr Clarke said: "Whilst our international business is delivering excellent growth, contributing £1.1 billion of profit to the group, we fully recognise that we need to raise our game in the UK. As we improve the shopping trip for our customers, it will follow that our sales growth and financial performance will improve too."

Mr Clarke's turnaround plan follows criticism that the UK business has been deprived of investment because of the need to fund Tesco's overseas expansion, leaving its stores cold, clinical and understaffed. With Tesco's focus now shifting to upgrading its existing stores, the amount of new space being opened will slow by 38%.

Other improvements will include a "complete relaunch" of the Tesco own-brand ranges and a £150 million investment in its website to allow it to better compete with online specialists such as Amazon. It will add a further 700 click-and-collect pick-up points to its stores over the next year, almost doubling the number available.

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