Comment: Tesco should keep the faith with its store refresh programme

Just when all of those who are supposed to know said that things couldn’t get any worse, Tesco issued a profit warning and with it the news that capital expenditure is being cut. At UK store level the company has said that it is slowing its store refresh programme.

A week may be a long time in politics, in retail things take a little longer. A year ago, the same analysts were praising Tesco for what had been done in Watford and how a seemingly impossibly large space had been made into a manageable and in many ways desirable destination. Last week, however, they were queuing up to throw around words and phrases such as “disappointing”, “negative operational gearing” (whatever this is) and thoughts on turning round oil tankers.

In fairness, post-Watford, there has been a lot to be positive about Tesco’s in-store landscape and where the cash has been splashed the results look good. And it wasn’t as if what has been done wasn’t needed. It was and a new-look Tesco, big or small, feels like not a bad place to be, profit warning nothwithstanding.

The problem for Tesco is not that its store revamps are the wrong thing, it’s just that others have been upgrading their acts while the UK’s largest retailer struggles to deal with what are often referred to as ‘legacy stores’. A question therefore: Does it make sense to slow down capital expenditure on store revamps at a time when the competition is going all out (with the exception of Morrisons which – even allowing for its misting machines in the fruit and veg area – looks like, well, old-school Morrisons) to provide improved experience for its customers?

Relatively recently, Tesco used to have a share of the UK food market north of 30%. Now it has a little over 28% and many are wondering if this may fall back further. One thing seems certain, it is unlikely that any retailer will have 30% of the UK food market again and Tesco is still a leviathan when set against its rivals, even allowing for the growth of the discounters and Waitrose. For this reason alone, it needs to keep faith with what it has been doing in its stores. Allowing the ‘legacy stores’ to remain legacies will see further rot setting in and further inroads being made by the competition. Applying the brakes to the store modernisation programme might be the wrong thing, in spite of investor sentiment and the need for cuts.