Tesco Looks To Superstores After Record Loss

Tesco (Xetra: 852647 - news) is to look to its big superstores to revive its fortunes after announcing the sixth-biggest loss in UK corporate history.

Britain's biggest supermarket group reported its worst-ever results with a pre-tax loss of £6.38bn for the year to the end of February.

That compares with an annual pre-tax profit of £2.26bn a year earlier.

:: Tesco Plunges To Worst Annual Loss Of £6.38bn

Chief executive Dave Lewis admitted it had been "a very difficult year for Tesco" caused by an "erosion of our competitiveness over recent years".

But in an interview with Sky News, he talked of his plans to rebuild the company by improving the competitiveness and quality of its out-of-town superstores and slashing its product range.

He also said Tesco can improve its low trading margins despite the tough market conditions , but said customer service would come before profit.

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Asked about the amount written on the 'death of the hypermarket' and the end of the 'weekly big shop,' Mr Lewis said he sees a "very valuable" future in Tesco's large superstores.

He told Sky (Other OTC: BSYBF - news) 's Ian King Live programme: "People will talk about customers going to shop on more occasions, and people will say that's a trend.

"But when I talk to people they say: 'Well I'm doing that because that's the way I can get best value, and it's more convenient for me to get best value by doing that.'

"I think the opportunity for us as a retailer with those big stores is actually if we can go back to (that), just imagine what it feels like if the service is great, the availability is absolutely complete, and that the prices you get are competitive versus anybody else, and there's the range there so you can do all your shopping in one place, that's the most convenient shop anybody can have.

"And people want that time back. So I think they go to other stores because they think they are getting something better.

"If I can put that all together and make the shop worth the trip, I don't see why the large superstores can't be a very valuable part of our business. But I have to make them that."

Sales fell by 2.2% in the last quarter at the group's largest Tesco Extra stores - a sharp improvement from a 6.3% drop in the third quarter and a 7.5% fall in the second quarter.

There are currently 250 Tesco Extra sites, and some have started to see space taken up by the likes of Giraffe restaurant chains to fill unused space.

Asked why he was slashing Tesco's product range by a third, Mr Lewis said in the two years before he joined in September 2014, the company increased its range by 31%, meaning it had "three-and-a-half to four times the range of any other supermarket".

Tesco will reduce that "inflated number" to a level where it has "two-and-a-half times more choice than our nearest competitor," he said.

He added: "And that's because we have such a broad set of people that choose to shop with us, and our ability as Tesco to run such a wide choice for customers is one of our great strengths, and we want to get that back to being an advantage - not a disadvantage."

Mr Lewis also said he believes he can improve Tesco's low margins, but said it would not come at the expense of customer service.

"The trading margin in the UK, we're very transparent about," he said.

"As a result of some of the things we had inherited, but also the fact that we've made since I've been here £300m of investment in the customer offer, means that we start from a place where our UK trading margin is very low indeed.

"Do I think I can rebuild that? Yes I do. We're very clear as a team that we can do that. The important thing is we rebuild that by giving customers better service.

"What I won't actually do is in any way prioritise improving the profit in a way that deteriorates what it is we've started to build as better service for customers."