Tesco’s Drastic Dave axes 43 stores to turn crisis-hit firm around
Sites bulldozed... Head office shut... But shares leap by 15%
TESCO is to shut 43 stores, close its head office and bulldoze some recently completed supermarkets built at a cost of tens of millions of pounds in an attempt to turn around its fortunes.
The radical measures which could cost thousands of jobs were announced by chief executive Dave Lewis yesterday.
The news cheered the City, sending shares in the UK’s biggest supermarket up 15 per cent – adding £2.2billion to the firm’s value – despite the final dividend being cancelled. Nevertheless, Mr Lewis, known as Drastic Dave by some analysts for taking tough decisions in previous jobs, said the moves were being made with ‘a heavy heart’.
Tesco’s share price slumped last year after it issued a series of profit warnings and became embroiled in an accounting scandal in which it appears profits were overstated for a long period. Police are investigat- ing. Mr Lewis, who joined Tesco in September from Unilever, has implemented a massive cost cutting programme to fund price reductions needed to stop an exodus of customers to thriving budget chains Aldi and Lidl.
The first price cuts, of an average 25 per cent on many big brand foods, began yesterday.
The decision by a major supermarket to close shops is virtually unprecedented, but Tesco said 43 – mainly smaller Express outlets – will put up the shutters.
Another 49 large stores on the drawing board, under construction or finished, have been axed. Casu- alties include the recently completed superstores at Chatteris in Cambridgeshire and Immingham in Lincolnshire. They cost around £22million each to build but will now not open.
The supermarket would not name which stores will be closed, but it would seem around 1,000 posts will be lost. And thousands who were expecting to find work in the 49 large stores that have now been cancelled will be disappointed.
Closing the head office in Cheshunt, Hertfordshire, in 2016 after 49 years is expected to trigger hundreds of job losses. Operations will move to buildings Tesco already owns in Welwyn Garden City. The final salary pension scheme for Tesco’s 300,000 UK staff is also ending.
The moves come after Tesco announced that like-for-like sales in the 19 weeks to January 3 fell by 2.9 per cent compared with the same period the year before. The fall in the six weeks around Christmas was a lower 0.3 per cent – however this was only achieved on the back of a deci- sion to issue a blizzard of money-off vouchers. Profits for 2014/15 are expected to decline by some 60 per cent to around £1.4billion.
Mr Lewis said he understood the decisions he was taking will hit ‘hard-working people’. He added: ‘It is a great business that’s come under intense financial pressure and we are trying to reinvigorate the model and address financial challenges. I am not immune to the impact of the decisions we have had to take on our colleagues.’
Shop workers’ union USDAW said it recognised that some change is inevitable, but added: ‘This is a worrying time for our members.’
Retail analysts welcomed the cost cutting, saying Tesco had become flabby and slow to react to changing shopping habits.
The accounting scandal has resulted in the suspension or departure of some of the company’s most senior executives. Matt Davies, who has turned round Halfords, will join in June to lead Tesco’s UK and Ireland business.
City Focus – Page 69
‘I am not immune
to the impact’