On 5th of December, Philip Clarke, chief executive officer at Tesco PLC, is expected to announce the company’s withdrawal from the US market. The decision comes as Tesco PLC struggles with its loss-making operations. The third-quarter results, which are also to be announced on the 5th of December, are speculated to be a prelude to the new strategy aimed at boosting Tesco PLC's operations.
Tesco’s strategic review
According to sources familiar with the matter, Tesco CEO Philip Clarke is due to post the company’s strategic review which is expected to lead to the sale or even the outright closure of its US stores as it is likely that the findings will indicate that it should not continue with its US arm, Fresh & Easy, in the present form. The strategic review, which was ordered by Tesco CEO Philip Clarke, has been formulated with the help of several investments bankers.
Fresh & Easy had been expected to be as big as its mother chain in the UK. Sir Terry Leahy, who was then CEO at Tesco PLC, decided to open business in the US market as he had his own vision of expansion. Yet plans of expansion were significantly miscalculated. And everything indicates that the review is to recommend if not the closure of Fresh & Easy, then at least a joint venture or an outright sale.
The US Tesco business, which consists of approximately 200 Fresh & Easy stores, hires as many as 5,000 workers. Tesco has seen high losses in the US market, not to mention that the UK biggest retailer has been also struggling in the motherland. Therefore Tesco CEO Clark is under pressure to get the business on track. Consequently, a £1 billion transformation plan, which has been recently announced, is aimed at improving mainly customer service.
Also on the 5th of December, Tesco is to post its third-quarter results, which are expected to widely echo ongoing challenges faced by the company. Analysts estimate that Tesco PLC’s like-for-like sales decreased by approximately 1 percent on the same period a year ago. While the UK biggest retailer has been struggling, its main competitors including Sainsbury and Waitrose have seen solid results.
Certainly analysts and the City have been eagerly awaiting the announcement of the review since Tesco CEO Philip Clarke underlined earlier that he needed to be convinced that Fresh & Easy could be successful.
Tesco in US
Back in 2007 the US business was launched by then Tesco CEO Sir Terry Leahy. However since Tesco PLC launched its first Fresh & Easy store in the US, the company has seen losses. Tesco PLC’s plans were too ambitious as the company’s top officials underlined that as much as 1,000 stores across California were to be opened. To date Tesco PLC has only 200 stores, not to mention that it did not expand to the East Coast.
Certainly the company’s US strategy lacked something essential and even investments such as a vast warehouse or a food factory were not enough. American customers did not know the company’s products. Given high losses, Tesco PLC will have to take the plunge if it wants to get out of its troubles.