Tesco 22 supermarket aisle 2

Tesco could cut back on store developments

Embattled Tesco boss Dave Lewis Dave today set out a three-pronged strategy to rescue the crisis-hit giant and said he hoped to prove wrong predictions the process could take at least £3bn and six years to pull off.

Lewis said his three priorities were to “rediscover the competitiveness of the UK” operation, strengthen Tesco’s balance sheet and “rebuild trust in the brand”.

Lewis is expected to outline later today further details of the strategy but insisted this morning he would not follow the path of former CEO Philip Clarke, who published highly detailed plans for its recovery strategy during his time at the helm.

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Tesco sources say Lewis believes Clarke’s failure to achieve the turnaround was in part because he spent too much time talking about the challenges faced by Tesco, which, as well as worrying the City, played into the hands of Tesco’s rivals.

Lewis said today: “I don’t want to give much away to my competitors.”

However, he confirmed that Tesco would continue to look at opportunities to slash its capital expenditure to create more financial headroom for the business as part of its plans to strengthen its balance sheet.

Stores in Nottingham, Chatteris and Immingham are among those already either mothballed or scrapped and Lewis said he saw “some opportunities” for a rethink of the strategy, although he added: “We are not saying we have a strategy based on  mothballing more stores.”

“I don’t want to give much away to my competitors”

Dave Lewis

Some analysts expressed surprise that Tesco had not announced further cuts to its capital expenditure in today’s delayed results.

“We are surprised that capital expenditure is set to remain at £2.1bn,” said Clive Black, of Shore Capital. “We had felt that this is a variable that could and needs to be managed down more aggressively.”

But Black welcomed the overall direction of Lewis’ strategic priorities.

“Mr Lewis has set out three priorities which are making the UK more competitive, protecting the balance sheet and rebuilding trust and transparency in Tesco. We welcome these priorities and expect that the market will too. However, further steps back may be needed for the business to progress financially.

“Protecting the balance sheet is a key priority that may heighten speculation that asset disposals of some sort may feature in future plans.”

Neil Saunders, managing director of Conlumino, also predicted a scaling back of Tesco’s store programme. “Tesco’s store estate was developed for a non-internet era,” he said. “A comprehensive review of space requirements is needed and the portfolio will ultimately need to be streamlined.

“Hand in hand with the streamlined portfolio it may well be necessary to develop a new store segmentation model. This should be based on local demand and competition which would be used to optimise what stock is sold and how it is displayed and marketed in store.”

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