Tesco chief executive, Philip Clarke, is to leave the retailer in October. He will be replaced by Dave Lewis from Unilever.
Announcing the succession, Tesco said current trading conditions are “more challenging” than anticipated.
“The overall market is weaker and, combined with the increasing investments we are making to improve the customer offer and to build long term loyalty, this means that sales and trading profit in the first half of the year are somewhat below expectations,” Tesco said.
“The outlook for the full year will be influenced by the extent to which benefits from the investments we are making begin to be seen; by conditions in the overall market; and by any steps that may be taken during the remainder of the year to improve our customer offer further,” the retailer added.
Tesco chairman, Sir Richard Broadbent, said: “Having guided Tesco through a substantial re-positioning in challenging markets, Philip Clarke agreed with the Board that this is the appropriate moment to hand over to a new leader with fresh perspectives and a new profile. We are pleased to announce today the appointment of Dave Lewis, president, Personal Care at Unilever, as our chief executive from 1 October, 2014. Philip Clarke will continue as chief executive until that date and will continue to provide support to Dave until January 2015. Philip will also remain chairman of our joint venture with CRE in China until that date.
“Philip has done a huge amount to set a clear direction and re-position Tesco to meet the rapid changes taking place in the retail market. He has achieved a great deal across all areas of the business in the face of considerable pressures. The Board are deeply grateful to Philip for his contribution to Tesco, over the last four decades, as well as more recently as chief executive. His has been an outstanding achievement.
“Dave Lewis brings a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development. He is already known to many people inside Tesco having worked with the business over many years in his roles at Unilever. The Board believes that with Dave’s leadership Tesco will sustain and improve its leading position in the retail market.”
Clarke said: “Having taken the business through the huge challenges of the last few years, I think this is the right moment to hand over responsibility and I am delighted that Dave Lewis has agreed to join us. Dave has worked with Tesco directly or indirectly over many years and is well-known within the business. I will do everything in my power to support him in taking the company forward through the next stage of its journey.”
“Tesco needs to slash profit margins and get the business back to what it stood for at the start, when it was under the mighty Jack Cohen,” said Professor Chris Edger, business and retail expert at Birmingham University.
Edger advises Clarke’s successor to look at French retail giant Carrefour’s turnaround in the past year, to become the world’s second largest retailer after Walmart.
“Reduce the central cost-base of the business and invest in price. Current margins at over 5% are unsustainable,” said Edger.
“The internet and value retailers (dime shops and ‘hard discounters’) will continue to rip into Tesco unless consumers perceive it is returning to its original purpose; providing ‘surprice’ for customers. Reduce central costs and invest in price – totally re-engineering the cost base of the business seems to be the only way to go.
“Investment in services and bolt-on offers is window dressing. They must get the core business – food retail sales – back into organic growth quickly.”
Natalie Berg, global research director at Planet Retail, said: “As a branding expert, Lewis’ first task will be to define Tesco. Philip Clarke himself has admitted that the brand has baggage. It doesn’t stand for value, yet it doesn’t stand for quality, and without a clear proposition we fear that Tesco will continue to lose customers to more relevant and better-defined channels.
“Being the first ‘outsider’ CEO in Tesco history, Lewis will quickly need to prove that having no direct retail experience isn’t necessarily an impediment to taking on the biggest job in UK retail. The board will be relying on his significant FMCG experience to help steer Tesco safely through the increasingly-fractious price skirmishes currently unsettling the industry.
“Despite Clarke’s relatively short, bumpy stint at the top, we have to remember that when he inherited the business three years ago, the focus was very much on international operations – some of which have since rightly been divested – while its core UK stores were overrun and underinvested.
“Although we feel Clarke has made significant progress on refreshing existing stores, the fundamental issue remains – shoppers are no longer making that big weekly trip to an out-of-town superstore. Unfortunately for Tesco, over half of its stores fall in the 50,000+ square foot bracket.
“A change in leadership may bring some much-needed fresh thinking to Tesco, but the structural shifts in the grocery sector cannot be reversed. Lewis will need to reposition Tesco to adapt to this new normal.”