Tesco 2007 Annual Report Download - page 15

13
OPERATING AND
FINANCIAL REVIEW
New Space We opened a total of just over 2m sq ft of new
sales area, adding a net 7.3% to our UK sales area during
the year in all formats, of which 800,000 sq ft was in store
extensions, principally for Extra. We opened another 30 Extra
hypermarkets, bringing the total to 147, most of them
developed through extensions to existing stores. Extra
now represents 37% of our total sales area.
In total, a further 2.1m sq ft is planned to open in the current
year, of which store extensions will represent over 30%, and
a significant proportion of this will be allocated to non-food.
85 new Express stores opened during the year, bringing the
overall total to 735 and a similar programme is planned for
the current year.
Non-food Despite a less helpful consumer environment in the
UK, our general merchandise business has again made very
good progress, with sales growing significantly faster than in
our core operations and the proportion of our sales represented
by non-food rose to 25% (excluding petrol). With our relatively
low market shares in many general merchandise categories,
the growing popularity of our offer for customers and the
scope to expand our stores or sell more though direct channels,
these areas provide exciting growth opportunities for Tesco.
Group non-food sales have grown to £10.4bn, including
£2.9bn in International. Sales growth, in the UK alone, was
11.6% in the year, with total non-food sales increasing to
£7.6bn (included in reported UK sales). Volume growth was
again even higher, driven by our ability to pass on lower prices
to customers, funded by our growing scale and supply chain
efficiency and the benefits of more direct sourcing in Asia.
We have seen strong growth in most large non-food
categories, including product groups which have seen flat or
reduced overall consumer spending. Most, but not all of our
established categories, which benefit less from new space,
grew strongly. Those which did well included health & beauty
where sales increased by 9% and news and magazines,
also up 9%. Although we increased market share, sales in
entertainment (DVDs, CDs etc) were weak as a result of the
growth of internet downloading and deflation.
Our newer categories saw strong growth. Clothing sales again
grew well – up by 16% – in a subdued market, partly affected
by unseasonal weather and we made strong market share
gains by volume and value. Some product groups, which we
have been able to allocate more space to in our larger Extra
stores, did particularly well. For example, toys and sports goods
were up 30%, consumer electronics sales rose by 35%,
stationery and DIY both up by 23%.
Tesco Direct Last September, we announced plans to expand
our non-food offer substantially and make it more accessible
for customers through tesco.com and our catalogue. We started
Tesco Direct in a low key way – with initially 8,000 products
offered on-line and 1,500 by catalogue, including new
categories such as furniture. We have now launched a more
comprehensive offer – with 11,000 items on our website, 7,000
of which are in our catalogue and begun the roll-out of several
of our innovative options for customers to order and collect. As
well as wider ranges, Tesco Direct provides customers with the
choice of ordering on-line, by phone or in selected stores and
market-leading delivery options, including two-hour slots for
home delivery, the option to pick-up from some stores (soon
to be 200) and very short lead times on furniture orders. The
customer response so far has been very encouraging.
Homeplus The performance of our Homeplus trial non-food
stores – we now have six units trading – has been pleasing. Our
most recent trial store in Chelmsford, trading from 50,000 sq ft,
has traded well. It stocks a general merchandise range similar
to the assortment offered in larger Extra hypermarkets and is
also able to provide more space than the earlier trial stores for
promotions and seasonal events. A further store is planned
but no decision has yet been taken on further expansion for
this format.
Retailing services Our efforts to bring simplicity and value to
sometimes complicated markets are behind the success of our
retailing services businesses. Also underpinning this element
of our strategy is a strong economic model, based around
leveraging existing assets – either our own or a partner’s – so
that we can simultaneously price our services competitively
for customers and also achieve high returns for shareholders.
•Tesco Personal Finance (TPF) has delivered a creditable
performance in a difficult financial services market as
a consequence of making higher provisions for bad and
doubtful debt. Profit, net of interest and tax, is £130m
(last year £139m) of which Tesco’s share is £65m. Market
conditions in two of TPF’s core markets – credit cards and
motor insurance – remain difficult, but a strong programme
of new product launches is planned for the current year.
•tesco.com sales continued to grow strongly – up by 29.2%
in the year to £1,226m. Profit, before the start-up costs
associated with Tesco Direct also rose strongly – by 48.5%
to £83.4m. The grocery and wine business now has over
850,000 regular customers and more than 250,000 orders
a week.