Photo Courtesy: Bloomberg--Getty Images
By Geoffrey Smith
July 21, 2014

The U.K.’s biggest retailer, Tesco PLC ousted chief executive Philip Clarke Monday after the latest in a string of disappointments over its earnings.

Clarke is paying the price for failing to stop a steep decline in the fortunes of the supermarket giant, which is the second-biggest retailer in the Fortune Global 500 after Wal-Mart Stores Inc. (WMT).

Tesco (TESO) has lost share in its core $290 billion home market both to discounters, and to high-end outfits such as Waitrose Plc, particularly in the area of online shopping. It said Monday that first-half sales and profits would be lower than it expected only last month because trading conditions…more challenging than we anticipated.”

The company’s shares have lost over 25% in the three years since Clarke took over, while the benchmark FTSE-100 index has risen 14%. They rose by 2.3% in response to the news of Clarke’s departure.

Only five years ago, Tesco’s position seemed impregnable: it accounted for nearly a third of the U.K. grocery market, and used the cash flows to expand into high-growth emerging markets such as China and India as well as most of central and eastern Europe.

But the crisis made a mess of the company’s projections for emerging-market growth, and the long recession that followed it drove U.K. shoppers into the arms of Aldi and Lidl, aggressive discounters newly arrived from Germany.

As the economy has returned to growth, Aldi and Lidl have kept those customers by improving their product ranges. Tesco’s home market share has fallen by two full percentage points to 28.9% while Clarke has been at the helm, while the combined share of Aldi and Lidl has risen to 8.3% from 4.8%.

At the same time, its efforts to keep costs down have had disastrous results on its image: last year, the discovery that its burgers contained up to 29% horsemeat meant that it suffered more than others from an industry-wide scandal over lax control of supply chain, prompting many of its more demanding, better-off customers to defect to Waitrose and its new online delivery service, Ocado.

Tesco has appointed Dave Lewis, head of personal care at consumer goods company Unilever Plc (UL) to succeed Clarke, who stands to get a $1.9 million pay-off.

Analysts at Barclays in London called Lewis a “credible” replacement, but warned that “the UK industry faces some big challenges that one man alone cannot easily solve.”

They noted that Clarke deserved credit for getting Tesco’s out of the Japanese and U.S. markets, where the company had failed to achieve a critical mass, and in building a new partnership in China. They also argued that the benefits of his initiatives in the U.K. still need time to be felt, but said “the reality is that Tesco‚Äôs operating performance has continue to fall short of the expectations of both the market and the company itself.”

 

 

 

 

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