Tesco to invest £1bn to tackle drop in British profits

Apr 18, 2012

Supermarket giant plans to 'put the heart and soul' back into its underperforming UK business

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TESCO has unveiled a blueprint to stem falling sales and win back its market share after January's setback, which saw the world's third largest retailer issue its first profit warning in 20 years.

"The plan isn't radical... but it's a radical change of pace - more staff, better quality and range, warmer stores, friendlier service and a determination to do the basic things better," said Tesco CEO Philip Clarke.

While the group's overall profit before tax was in line with business forecasts, rising 1.6 percent to £3.9 billion in this year, trading profits for the lucrative British arm of its business were down.

Sales in the British sector, which accounts for 70 per cent of Tesco's profits, fell 1.6 per cent in the last quarter of 2011/12, reports Reuters while trading profits fell one per cent, to £2.5bn, over the financial year.

The £1bn investment is set to revitalise Tesco's British business, focussing on improving staff levels, smartening up shops and delivering better prices and products. Meanwhile, the firm's expansion strategy has been scaled backed with 38 per cent less new space being added in Britain in 2012/13 than in the previous year. Overall group capital expenditure is to be cut to £3.3bn from £3.8bn.

"I've decided now to focus on making the stores we have profitable first before pushing ahead with further higher levels of expansion," said Clarke.

The BBC reports that Tesco's management has been "distracted" by expansion in the US and Asian markets, causing the UK business to stall.

Tesco boss Clarke said the firm's disappointing performance was in part down to aggressive discounting by rivals and admitted the company needed to "raise its game" in the UK. The firm plans to take on and train 8,000 new staff, creating a total of 20,000 new jobs in the next two years.

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