Tesco's Needs for Change

The stability and market share that Tesco once occupied is diminishing. Our revenues and profits have dropped significantly in the last five years through competition from discount retailers entering the market and the subsequent price war. Our operating profit has dropped from £3,457 million to £2,631 million between 2010 and 2014 despite an expansion from 4,836 to 7,305 stores over the same period [1]. Figure 1 displays this drop in profit margin from 6% to 4.1%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In addition to this the company made a comprehensive loss in 2014 of £859 million! The following graph, shows the reduction in sales in 2013 and 2014 once the sale of petrol has been removed, with the company making a loss in each quarter [2].

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 3, shows a 0.6% drop in the companies Return on Capital Employed, from 12.7% to 12.1%, caused by this drop in profits in addition to a significant increase in risk, shown by the increase in the Gearing ratio, from 39.6% to 44.8% [3].

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This trend is not unique to Tesco however, with similar results being experienced by the other 3 of the Big 4 retailers.

 

 

REFERENCE:

[1] http://www.tescoplc.com/index.asp?pageid=30

[2] http://www.ft.com/cms/s/0/548b0a50-5a99-11e4-8625-00144feab7de.html

[3] http://www.tescoplc.com/files/pdf/reports/ar14/download_annual_report.pdf