The supermarket said around £4.7bn of the losses were the result of the fall in property value of its UK stores, 43 of which it said would close earlier this month; a further 49 planned outlets are to be mothballed.
The decline in the value of its property portfolio comes as a direct result of falling footfall in many of its out of town superstores (such as the Tesco Extra pictured). As a result of changing shopping habits and a move away from shopping at out-of-town sheds, a fifth of the retailing giant’s floorspace is “underused”, according to analysts.
Chief executive Dave Lewis admitted it had been “a very difficult year for Tesco”. Experts regard that as an understatement – it’s been a catastrophic year for the supermarket giant which is still being investigated by the Serious Fraud Office after it overstated its half-year profit forecast in August 2014 by £263m; it also has a large pension fund deficit it needs to address.
Annual group trading profit, which counts sales through the supermarket’s tills was also down 60% at £1.4bn, compared with £3.3bn a year earlier. UK like-for-like sales excluding fuel declined by 3.6% in the year.
Marc Kimsey, senior trader at Accendo Markets, described the results as “another shocker” from Tesco. He added: “This set of results disappoints on every level – the pre-tax loss exceeds the City’s already dire expectations and the trading profit has fallen by almost 60% in just a year.
“Traders are now discounting positive management rhetoric regarding a ‘turnaround plan’. Only the numbers will do now and sadly, they are not only disastrous, but deteriorating.”
Meanwhile, Paul Thomas of the retail consultants Retail Remedy, described the results as not only one of the biggest losses in British corporate history, “it’s a black hole that risks consuming a once all-powerful brand”.
He said: “To say Tesco’s chief executive has a mountain to climb to reverse its decline is to underplay the scale of the task. Dave Lewis must feel like an ant scaling the Himalayas.”
But Professor Heiner Evanschitzky, professor and chair of marketing at Aston Business School, warned against writing Tesco off.
“These results are evidence of the typical ‘everything but the kitchen sink’ approach taken by any incoming CEO – better to get the bad news out now and show that you’re overhauling the business than let it haunt you any longer than necessary,” he said. “But the signs are positive for Tesco under the leadership of Dave Lewis; although trading profits are down 60% from last year, this is still a substantial profit in a time of cut-throat competition from the discounters.
“You don’t have to be perfect to win in this market. You just need to be better than some of the others – and its well within Tesco’s reach to beat the likes of Asda and Morrisons. They just need to slim down and go back to basics – solid customer service, in locations customers want them.”
He added: “Too much floor space and a misplaced focus on price are huge factors behind Tesco’s losses. Our shopping behaviour has changed enormously in recent years; we get what we need, when we need it at convenience-style stores. The age of the big weekly shop at the out-of-town hypermarket is over. As a result, the value of Tesco’s property has plummeted.”
Professor Evanschitzky urged new Tesco boss Dave Lewis to slim down the business to build the brand back up in the coming months and years:
“Lewis must focus on Tesco’s core business and core markets. Close down unprofitable stores, rent out excess floor space to other retailers to great shops within a shop and stop trying to battle it out with the discounters over price, a war that you’re bound to lose. Give shoppers want they want – a strong company that offers quality, convenience and good service.”
In a further sign of the Big Four’s woes, Sainsbury’s, the third-biggest supermarket, today said it was cutting 800 department and deputy manager jobs in a cost-cutting drive.