Tesco 2013 Annual Report Download - page 8

4Tesco PLC Annual Report and Financial Statements 2013
Report from the Chief Executive continued
So we are exceptionally well-placed to thrive in this new era of retailing. However, to grasp
the opportunity we must adapt because it will require a different type of business, with
a different type of relationship with our customers, and a new set of capabilities.
We have already begun this process of adaptation.
A year ago, I signalled the end of the space race and a change in focus. I indicated that our
future investment would be less about new large stores, and that it would be more focused
on multichannel retailing and on smaller formats.
A year on, I am even more certain that this is the right approach for us to take. The future of
retailing is multichannel because, in this increasingly complex and volatile world, consumers
are looking for simplicity and for brands they can trust. A truly multichannel business – one
which offers customers the ability to shop anywhere, anyhow and any time – will be more
likely to become a winner in the new era than one which concentrates purely on one channel
or another.
Our stores are a vital part of this multichannel vision. Tesco has a superb portfolio of well-
located stores in all of our markets, but adapting to a digital future means harnessing this
great asset to the changing requirements of the digital age. This will require rethinking how
we use the space in our stores, how we offer and deliver what we sell, how we interface with
our customers and much else besides. I will return to the specifics of what we are doing
in some of these areas below.
The business in 2012/13 – a year of transition
This year’s performance was principally the result of three things in combination:
• the decision we took in early 2012 to reset our margin in the UK and invest £1 billion
in improving our offer for customers;
• the continuing economic challenges our customers around the world are facing,
particularly in and around the Eurozone; and
• the impact of legislation restricting opening hours in South Korea, our largest market
outside the UK.
I have reflected on the work we have done over the first two years of my tenure as CEO and
it is clear to me that much of our effort has been about removing barriers to progress. The
business has delivered many years of growth and good returns, but was in danger of being
inhibited from further sustainable progress by an attachment to initiatives and strategies
which, while they served us well in the past, need to be adapted to deliver growth in a more
economically challenged and rapidly changing world.
Consequently we have had to tackle a number of issues which needed to be addressed
before we could move the business forward. This work has entailed some tough and at times
painful decisions and while it is not finished, I am confident we have already tackled the
biggest issues.
These changes were often difficult to face up to, complex to implement and they have
required a great deal of hard work by many people, some of whom have been directly
affected by the decisions. By way of reminder, in a little over 18 months we have:
1. Decided to exit markets in which we saw no prospect of acceptable investment returns
in an appropriate time frame – Japan and the United States;
2. Devised and progressed the comprehensive £1 billion investment plan to ‘Build a Better
Tesco’ in the UK, resetting our margins to fund the scale and pace of change required;
3. Put an end to the big store space race – placing a much greater emphasis on growth
through both digital and convenience retailing, wherever we operate;
4. Reviewed our entire UK property pipeline to ensure it is appropriate for our future needs
and valued accordingly. Going forward this will mean less capital commitment to property
development and also less asset divestment;
5. Reflected the new global economic reality by reviewing and moderating the rate of
expansion in some large economies such as China and sharply reduced spending in some
of our European markets; and
6. Focused Tesco Bank on the smooth migration of customer accounts to our platforms,
strong governance, risk management and increasingly on preparing it for its key role
in our multichannel future.
“ A truly multichannel
business – one which offers
customers the ability to
shop anywhere, anyhow
and any time – will be more
likely to become a winner
in the new era than one
which concentrates purely
on one channel or another.”