Today’s news that Philip Clarke will stand down as chief executive at Tesco (LSE: TSCO) has not come as a major surprise to many investors. That’s because Tesco has struggled to deliver any meaningful sales growth over the last few years, and has appeared to be unable to put together a clear, coherent and meaningful strategy to tackle the discount retailers. Indeed, Tesco has done little more than cut prices, which is unlikely to yield a stronger bottom line in the long-run.
Of course, Sainsbury’s (LSE: SBRY) also changed its Chief Executive recently, with Justin King stepping down to be replaced by Mike Coupe. Although Sainsbury’s has struggled over the last year, its performance has been significantly better than that of Tesco, with the company seemingly having a more loyal customer base and a superior strategy to its rival. For instance, while Sainsbury’s has remained competitive on price (for example, through its price match coupons), its main focus has been on communicating the quality of its own brands. This has gained favour with customers and is a strategy that Tesco could follow in future.
Clearly, there are significant similarities between Tesco and Morrisons (LSE: MRW). Indeed, both companies have lost a substantial proportion of their core customers to discount retailers such as Aldi and Lidl, while their strategies have been similar in terms of investing in prices (cutting prices). As mentioned, this may help to make quarterly sales figures less bad, but it does little to aid the bottom-line.
Furthermore, Morrisons has been very late to the party in terms of convenience stores and in having an online presence. While these are being rolled out in haste, the company is behind rivals and may struggle to catch up. Investors may begin to question why Morrisons did not roll these offerings out at the same time as Tesco and Sainsbury’s did, around ten years ago.
Indeed, the fact that Morrisons is late in rolling out online and convenience store offerings, as well as its policy of simply cutting prices, highlights the fact that management strategy could be at least partly to blame for its present woes. For instance, Morrisons’ earnings this year are forecast to be less than half what they were in 2013, while Sainsbury’s are set to be only slightly lower. Could management at Morrisons have done more? Clearly, the answer is ‘yes’, since not all rivals are seeing profits halve in two years.
Looking Ahead
As with any company, private or public, if performance is unsatisfactory then the person at the top rarely lasts. Certainly, Morrisons is experiencing highly challenging trading conditions and at least part of its decline in profitability can be blamed on this. However, question marks must be raised surrounding whether it is doing the right things to try and recapture core customers (and attract new ones). For this reason, blame may be attached to present management and it would, therefore, be of little surprise to see a new team take over at Morrisons over the short to medium term.
