Clarke leaves after another profit warning for Tesco
Judging by this morning’s share price gains to the news that Tesco CEO Philip Clarke is leaving, you would have been forgiven for thinking that he was part of the problem, ailing the UK’s largest retailer.
This morning’s news of another profit warning appears to have done for Mr Clarke, who had the unenviable task of replacing Terry Leahy, three years ago just as the tide was starting to go out.
The question now being asked is whether this will be a game changing event with the announcement of Dave Lewis from Unilever as his replacement.
Unfortunately for Mr Clarke, Tesco’s problems would appear to predate his taking over the company and he appears to be paying the price for taking too long to turn around the retail supertanker that is Tesco’s.
Being number one usually means that you normally only have one way to fall, and while Mr Clarke may have to shoulder some of the blame for some of the company’s recent problems, the fact is Tesco, should have been reorganising its business way before Mr Clarke took over.
Quite simply the company was too slow to adapt to the changing shopping habits of a UK consumer who was becoming much more cost and value conscious, getting squeezed from the lower end by Aldi and Lidl, while being squeezed at the top end by Waitrose.
It is now stuck in a pincer movement between the top and bottom ends of the market as its market share continues to be eroded. It will take more than a change of CEO to stop this trend continuing and while today’s rebound in the share price is welcome, it could well be temporary, given that this morning’s events merely signals the beginning of a new fire-fighting exercise, with margins likely to get squeezed further as the major supermarkets take the discounting fight to the discounters.
The share price is just above multi year lows at 277p, and the key question investors should be asking themselves is whether today’s changes at the top change the outlook for Tesco’s performance going forward into the rest of the year.
The fact is the structure of the UK food retail sector has changed significantly over the past five years, and the reality is that the outperformance of the Leahy years are likely to remain a thing of the past, given the new kids on the block. A new CEO won’t change that.
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