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UK Retailer Tesco Set for Worst Christmas in Decades

Andrea Felsted, Financial Times

Tesco is forecast to deliver its worst Christmas sales performance in the UK for decades, amid reports of tensions at the top of Britain’s biggest retailer over its unsuccessful price-cutting campaign.

The Holyhead branch of Tesco on the Isle of Anglesey, North Wales, on November 19, 2010 in Holyhead, United Kingdom.
Christopher Furlong | Getty Images

JPMorgan Cazenove, joint broker to Tesco , is forecasting a 1.5 per cent decline in UK sales from stores open at least a year, in the six weeks to January 7, representing a sharp deterioration from the previous reported trading period.

This weak trading performance from Britain’s most consistently profitable retailer highlights how its high-profile price-cutting campaign this autumn, which cost the retailer more than 500 million pounds ($771.6 million), has failed to revive its UK performance, putting pressure on new chief executive Philip Clarke, and Richard Brasher, head of Tesco’s UK business.

Two people close to the company, and one Tesco insider, said Mr Brasher had wanted to go further with the so-called “Big Price Drop” to fight back against nimbler rivals in its home market.

Tesco said when it announced the first wave of price cuts in September that UK profit would be broadly flat in the second half of its financial year.

However, Mr Clarke, who took over from Sir Terry Leahy in March, and Laurie McIlwee, finance director, were keen to avoid a bigger hit to profits, the insider said.

Tesco dismissed any tensions over the pricing strategy as “nonsense”.

Tesco’s weak trading performance comes as the retailer has suffered a string of top management departures over the past few months.

The latest to leave is Per Bank, commercial director for the UK non-food business, who was this week named as chief executive of Maersk’s Dansk Supermarked.

Clive Black, analyst at Shore Capital, who has a strong record of forecasting Tesco’s performance, said: “Undoubtedly this will be one of the worst Christmases for Tesco.

The disappointing trading performance must be something that is at the top of senior management’s worry list.” He said he expected Tesco to be the “laggard” of the big four supermarkets in terms of sales performance over the crucial Christmas and New Year trading period.

On Friday, Nielsen said Tesco had the lowest sales growth of the big four in the four weeks to December 24.

But Mr Black said it was possible that the volume of goods sold over Christmas may be improving.

In Tesco’s third quarter, it outperformed the market on volume, but the price cuts meant less money was going through its tills.