Tesco: "It's the end of the world as we know it" - It really could be

Earlier today, Mark Webb - Head of Social Media Dixons Carphone - reissued an intriguing press release covering a two-store test, with Dixons operating concessions inside two Tesco Extra stores: Milton Keynes, opened 21st July and Weston Favell, Northampton which opens this Friday. 


The possible implications for Tesco and UK retail are profound.

Let's assume the test is a success (in terms of whatever KPIs Tesco / Dixons set), what then? The expansion across the remainder of the Extra estate would be a natural response, but what about the tech offer, albeit reduced in other stores and online?

It would make little sense to duplicate buying activities across Tesco & Dixons, not for the least part because the outcome would be a disconnected customer offer. So it seems the logical progression would be to hand over the entire suite of categories to Dixons.

Dixons get access to significant customer footfall in prime established retail territory enabling a further rationalisation of their retail space. Meanwhile, Tesco relieve themselves of backend and front-end staff and inventory costs. Instead of being a retailer, Tesco becomes a landlord charging rent and probably taking a % of sales.

Assuming this works for electronics, why stop here? Beers, Wines & Spirits could be outsourced to Majestic Wine; Health, Beauty and Pharma could be offered to WBA or AS Watson; F&F could be axed and Next invited in...In fact, there is very little Tesco could not out source to other people




In essence, Tesco would become to all intents a mini-mall operation and even their home delivery operations can be outsourced to a 3PL cross-funded by the suppliers participating in the delivery.

Given staff, inventory and rents are three drags on any physical retail model, the pilot with Dixons sees Tesco making a strategic inquiry as to whether it can liberate itself from these constraints.

Tesco - the property company that sells some stuff might be turning into Tesco the property company that let's other people sell stuff. This really could be the beginning of the end of Tesco as we understand it..

Tesco: That David Moyes feeling...

Manchester United's ten month disastrous flirtation with David Moyes is over. To many, he had been "dead man walking" for months. Despite long-terms critics like myself incessantly calling for his head even before he was appointed, the prevailing mood among the faithful had been to tough it out. 


Moyes was Sir Alex Ferguson's pick and who could argue with that? I never understood the call to give him more time.  After all, why would you give a failing arsonist this luxury? Out of all competitions and no European football for the first time in two decades, time finally ran out for Moyes.

There are some striking parallels between Manchester United and Tesco - organisationally and managerially. Organisationally both have been at the top of their game for the past twenty years. 

Both had  leaders, peerless in their domestic arena who anointed their successors and both business models have been changing profoundly with the influx of massively funded competitors arriving seemingly from nowhere.

For United, the arrival of Abramovitch at Chelsea brought the first high profile billionaire in to the public glare but it is Sheikh Mansoor's arrival at Manchester City and his impending purchase of a new NYC MLS franchise that changed the game. At the same time the Qatari's bought Paris Saint Germain in France and spent $145m on new players last season. United, in transition, have been caught flat-footed.

In mass retail, Tesco are being outplayed by international competitors. Aldi and Lidl from continental Europe, Walmart in USA and UK. But it's the new, next generation giants Amazon and Alibaba that threaten to overwhelm mass retail globally. Tesco have plenty of ideas; possibly too many, without the bandwidth to deliver. Last week's announcement of the decision to open seven F&F Franchise stores in Boston was dwarfed by Uniqlo's declared intention for global fashion domination.

When Philip Clarke recently noted "bigger is no longer better", he was hinting at a problem Manchester United are also facing. Patchi prove how small focused retail businesses can deliver outstanding concepts - way better than anything a mass provider can execute. This is fine for niche, but neither Tesco or United are niche propositions. It's not “big isn't better”; it's more "the new big is bigger" - and for both soccer and mass retail, to play in the “new big world”, you need to have a deep reservoir of international cash to compete.

Asda (Walmart), Boots (Alliance-Walgreens), Aldi (Albrecht family), Lidl (Schwarz family), Sainsburys (25.99% owned by PSG's Qatari Sovereign Wealth Fund) and Superdrug (AS Watsons) appear to have the ownership structure to provide access to external capital. 

Tesco, big in local terms, may need a stronger, internationalised financial backer to secure their long term competitive future. Of concern, Berkshire Hathaway, one of Tesco’s two main institutional shareholders have been reducing their exposure. Similarly, United need to find investment minded billionaire owners to underpin their future.

In the ultimate paradox, United who have fallen furthest will turn around fastest.  United will hire a globally recognised football giant, who in turn will be given $150m and eighteen months to rebuild. Tesco, by contrast, retain their UK's #1 position, but their grip on share is slipping with challenges across their business model. None of this disappears whoever is in charge

Despite a torrid season and all the popular commentary calling for Moyes' exit, once the narrative became front and back page news, his position was untenable. 

Tesco has similar problems. Last weekend's heavyweight papers were filled with negative critique. Journalists are talking with fund managers: they speak of leadership replacements. The narrative is who and when, not if.  Interestingly, former Tesco executive Tim Mason, fancied by some as Clarke's replacement, broke his fifteen month twitter silence last week, referencing two damning articles on Clarke's reign. The jockeying is well and truly under way.

It was never going to be easy filling their respective predecessors' shoes. Both Moyes and Clarke inherited organisations that had over-traded their pasts whilst competitors were investing for new tomorrows. If Philip Clarke reads today's papers he might be forgiven for feeling he has been visited by the ghost of Christmas future. It's that David Moyes feeling...