Former Tesco (LSE: TSCO) boss Sir Terry Leahy believes that the worst is now behind the UK’s three largest publicly traded retailers, Tesco, J Sainsbury (LSE: SBRY) and Morrisons (LSE: MRW).
Speaking on a conference call to analysts, the retail veteran referenced Tesco in particular when he made these comments. Indeed, Sir Leahy believes that the company has fallen out of touch with its core customers.
However, now that the company knows what’s going wrong, Tesco’s former boss believes that the speed of the company’s recovery could surprise all stakeholders, including analysts, shoppers and shareholders.
A key part of the retail sector recovery will be a recovering economy. Low wage growth and rising inflation has driven shoppers towards discounters, despite their limited offerings and lack of customer service. And for these reasons, Tesco’s will be able to stage a comeback.
Tesco was a pioneer in using customer data to tailor rewards and offers, something other retailers are only just staring to offer. It’s estimated that the data analysis division of Tesco could be worth around £2bn as a standalone entity.
Further, Tesco’s size and position in the UK retail landscape will allow the company to dominate smaller peers. Data analysis is only part of the equation. Lower fuel costs should also help the retailer stage a comeback and the new management team, led by David Lewis will be able to use the company’s mistakes made over the past few years as an excuse to execute an aggressive turnaround strategy.
Hopefully, Lewis will move quickly to reverse Tesco’s fortunes than previous CEO Philip Clarke, who took a wait-and-see approach.
A different approach
Tesco’s has the size and data to execute a turnaround but Morrisons and Sainbury’s lack the same kind of market dominance.
Nevertheless, there are signs that the two retailers are now starting to get their act together and instigate a turnaround. For example, Morrisons is well aware that it has lost its way over the past few years. An ill-fated attempt to go upmarket alienated customers and the group’s slow entry into the online marketplace, as well as a lack of customer loyalty schemes put the company at disadvantage to peers.
However, now the group has started to get its act together. Prices have been slashed across the board, a loyalty card has been introduced and initial figures indicate that customers have flocked to Morrisons’ online offering.
Mixed opinions
Meanwhile, Sainsbury’s is trying to take the discounters on at their own game. In particular, the group has launched a joint venture with Danish discounter Netto. Sainsbury’s will open 15 Netto stores within the North of the UK, a region where the supermarket is under represented.
While this joint venture has split opinions — some analysts believe that the company should concentrate on its existing offering before branching out — it does show that Sainsbury’s is taking action. After years of growth, the company’s sales have started to slide recently but the tie-up with Netto shows that the group is not going to stand by and let the discounters steal market share.
