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Checking out

Source : BUSINESS_STANDARD
Last Updated: Wed, Dec 05, 2012 21:53 hrs

Tesco is finally admitting that its American dream has gone sour. But the likely exit from the United States will focus investor concern on a much bigger issue: the health of its core business in Britain and its hotchpotch of other international markets.

Although the UK-based supermarket has only outlined its intention to conduct a “strategic review”, it is all but certain to join the ranks of retailers that have tried, and failed, to penetrate the giant US market. In truth, Philip Clarke and the rest of Tesco’s relatively new senior management team have never really given the impression that they were convinced of the viability of Fresh & Easy, which had been championed by Terry Leahy, the former chief executive. Investors seem to share that scepticism. Tesco shares rose 3.2 per cent in early trading on December 5, after the company said it had grasped the American nettle.

It makes sense to stop throwing good money after bad across the Atlantic. Since 2007, the expansion has absorbed nearly 1 billion pounds. Revenue from the US venture amounted to a miniscule £365 million in the half year to August 25. But the removal of the US fall guy leaves Tesco exposed.

Tesco now has to concentrate efforts on its much bigger, and much more important, businesses in the UK and international markets that stretch from South Korea to the Czech Republic. In the most recent six months, the UK generated revenue of £23.9 billion and non-American non-UK businesses just over £11 billion.

The overall picture painted by the third-quarter trading update, also released on December 5, was not disastrous, but was uninspiring. Smarter competitors and the stagnant economic backdrop in the UK and elsewhere are making life hard for Tesco. There is some early evidence that recent management actions to reinvigorate the core businesses are bearing fruit. But having come to terms with its American nightmare, Tesco is still a long way from being able to sleep easily.



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