Few people could have predicted the demise of one of Britain’s leading retailers and fewer still would have dared to imagine it to have been quite so dramatic and as sudden as it was. Recently Tesco shares have plummeted, seeing nearly half their value wiped out on the back of a management admission that it overstated first half yearly earnings by £250 million ($400 million), with pre-tax profits down by 92% and a 56% fall in UK trading profits. Some have pointed to a failure of leadership and management and others have highlighted the role of 'Big Data'. But Tesco’s reversal of fortune has been such that even the billionaire investor and ‘Sage of Omaha’, Warren Buffett, was prompted to admit in a recent NBC interview:
"With Tesco, we definitely made a mistake. I made a mistake on that one more than anybody else made a mistake ... That was a huge mistake by me."
What has gone wrong with the UK’s leading retailer?
There are a number of factors that we can attribute to Tesco’s failure. Michael Schrage of MIT Sloan and HBR, has highlighted several areas, but particularly Tesco’s fabled reliance upon ‘Big Data’, so let's look at four key factors:
#1 - The failure of Fresh and Easy in the USA:
Tesco never quite recovered from the severe dent to its reputation from the high profile failure of its Fresh and Easy convenience stores in the USA. When the company finally pulled out, its plans to have over a 1,000 stores across the country were in tatters and it was nursing over £1.6 billion in losses from its investment.
#2 - The rise of the ‘deep discounters’ and greater price competition:
Tesco and a number of the other leading grocery retailers have failed to get to grips with the fierce price competition from discount chains such as Lidl and Aldi, particularly within Tesco’s home market, the UK. The discounters directly attacked the Tesco strategy of ‘everyday value’ and a recent marketing campaign by Lidl even mocked the well-known Tesco strapline, by substituting their own name, “Ever Lidl helps” (see the picture above).
#3 - Management Succession – the departure of Terry Leahy:
Academic books are probably already being written about the inability to effectively manage the succession from the previous chief executive, Terry Leahy, to the current embattled incumbent, Phil Clarke. Clarke has failed to reach the heights achieved by his predecessor. Tesco may yet become a case study in botched management succession to match the lessons to be learnt from the handover of Sir Alex Ferguson to his ill-fated successor, David Moyes, at Manchester United.
#4 - Big Data Disillusionment?
Tesco virtually wrote the book on using big data to hone its deft marketing with powerful analytics that enabled it to target and segment with the information gleaned from its Clubcard loyalty programme. Other retailers, both in the UK and internationally, viewed with awe the incredible dexterity with which Tesco was able to use its data to gather insights about customer loyalty and behaviour. Increasingly, however, as a recent Telegraph article made clear, consumers may be getting disillusioned by the loyalty cards which are seen as being more advantageous to the retailer than they are for the consumer. The appeal of the discounters, such as Aldi and Lidl, has perhaps come from their simplicity and straightforward approach, maybe offering a slice of how shopping used to be before data and analytics changed the retailing landscape.
Tesco: Corporate Failure or Future Turnaround?
All of this is not to suggest that Tesco is in terminal decline and it may yet regain its mojo, but there is no doubt that the average student’s favourite case study in business success, may be replaced by one of corporate failure. Whether that then morphs into a study in corporate turnaround, remains to be seen, but with recent media attention focusing on an ill-timed purchase of an executive jet, the retailer that could once do nothing wrong, now seems to be getting the attention for being unable to do anything right.
Will Trevor is the Founder and Training Consultant at Windsor Training. Please click 'Follow' if you would like to hear more from Will in the future. Feel free to also connect via his Linkedin page, or via Twitter and Facebook or email: will.trevor@windsortraining.net
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Picture Credit: http://www.chipshopawards.com/entries/4133/every-lidl-helps/
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