IN THE immediate post-Christmas period, a mood of navel-gazing descends on the nation as people draw up their personal balance sheets for the year just gone by. “Ate too much; failed to take enough exercise; career on hold” might be a common theme, cheered only by the resolution that this year will be different.
Britain’s retailers are forced into the same exercise but, rather than confiding to a private diary, they are forced by the demands of the City into making a public confession. The result has been a chorus of mea culpas as store after store has admitted to disappointing trade. Through department stores and clothing chains to Body Shop and Woolworths, the high street has bemoaned the Scrooge-like tendencies of customers.
But not Tesco. From the company’s chief executive, Sir Terry Leahy, came the ebullient summary that the group was “going like a train”, and the remarkable figures to prove it. In the seven weeks to January 3, Tesco’s tills rang up 15.4 per cent more than they had done over the same crucial Christmas period a year earlier.
From its grim, grey headquarters in Cheshunt, Hertfordshire, Tesco is striving successfully for retail domination, and not just in Britain but in wide swaths of Central Europe and Asia. This is not a train as Network Rail would recognise it, one for which timetables have to be extended to ensure that they are met. It is a record-breaking express moving at such a pace that rivals are left standing on the platform.
The figures are mind-boggling, verging on the scary for those who favour diversity in their choice of shopping outlets as well as the available range of television channels. In the year to February 2003, Tesco sales reached £28.6 billion, with more than £23 billion of that in the UK. Out of every £8 spent with British retailers, one went to Tesco. Since the group’s 15.4 per cent rise in Christmas sales came in a period when overall spending does not seem to have enjoyed a massive boost, it is safe to conclude that Sir Terry is well on the way to collecting one in every seven pounds that we spend, and then one in six.
Marks & Spencer, which once seemed such an all-powerful force on Britain’s high street, never reached such commanding heights and now looks puny by comparison. Sales from its UK stores just scraped above £7 billion in the past financial year and the miserable statement that summed up its far-from-festive Christmas reeked of defeatism. The head of clothing, bizarrely a former civil servant rather than a thoroughbred merchant, is being sacrificed to appease the City’s wish for a scapegoat, but he was not solely responsible for the stores being stocked with such dire ranges that its sales of women’s fashions are thought to have been as much as a tenth below those of a year earlier.
Previous fashion disasters at M&S have been somewhat salvaged by its food departments, beloved by those prepared to pay generously for others to do their peeling and chopping. But no longer does M&S have a monopoly on premium foods. Tesco has its Finest range, and Asda’s selection of ready meals has been designed to provide cover for the lazy dinner party host as well as those in search of an alternative to the local curry house.
Marks is, in part, the engineer of its own misfortune, having allowed a burgeoning bureaucracy to drive out the retail flair that used to characterise the organisation. But Sir Terry, a deceptively tough Liverpudlian, would not hesitate professionally to kick sand in the face of a weaker rival, and he judges anyone who might be trying to remove a pound from the purse of a potential Tesco customer to be a rival. He is even experimenting with extending the Finest brand to some clothing lines, including cashmere sweaters. That may not be enough to frighten Dolce & Gabbana but it might be a concern for Next, one of the few stars of the high street over the Christmas season. Next has succeeded where M&S is failing, in hanging on to a devoted customer base which feels the store understands its needs and caters for them efficiently. Its shoppers are not yet ready to fill their wardrobes from the grocer.
But the term grocer is no more fitting to describe Tesco’s operations than referring to the latest, sleekest laptop as a portable typewriter. Tesco sells butter and sugar but alongside exotic delicacies, clothing and electrical goods. Over Christmas, alongside the turkeys and Christmas puddings, DVDs were racing out of the stores, with sales 46 per cent ahead of the previous year. It sells more pet-protection policies than any other insurer, part of a rapidly growing financial services operation. And this week it asked shareholders for an extra £750 million so it could power ahead with its expansion. Naturally, they obliged.
The idea of the one-stop shop was not Tesco’s. The French pioneered the concept, and holidaying Brits happily took advantage of these novel “hypermarkets” to put some cocotte dishes and espadrilles in their trolleys alongside the petits pains and brie. But they were adamant that the idea would not cross the Channel, and when Carrefour made the attempt more than 20 years ago it was rapidly rebuffed. Gradually, however, time-impoverished shoppers have warmed to the idea of collecting most of their needs in a single weekly swoop. Tesco’s only real rival in catering for this desire is Asda, part of the vast Wal-Mart empire and therefore able to exercise an even greater buying power than Sir Terry. The deals that it can negotiate with suppliers enable it to sell a can of baked beans for less than the corner-shop proprietor would have to pay at the cash and carry, and the same economies of scale feed through into its non-food lines.
Take the fleecy top, for instance, now a commodity line unless the wearer is determined to have a designer label attached. When the stores’ buyers head out to secure their fabric, Marks & Spencer will have the edge over the high-street fashion chains but Wal-Mart orders its fabric by the mile, with price reductions to match. With a marketplace increasingly conscious of the desirability of getting a bargain, the sums give Asda and Tesco the edge.
Tesco actually claims to make a profit on every pair of £4 jeans that it sells. The fashion-conscious youngsters who regard a couple of hours in Topshop as entertainment will probably not be tempted to don these denims, but for those who are less particular about the latest trend in top stitching and more interested in having something serviceable to wear for doing the chores, jeans are jeans and at £4, a pair or two can go in the trolley.
But bargains can have hidden costs. The march of the supermarkets first wiped out many independent food shops such as butchers and fishmongers. Now that they are so successfully extending their reach into non-foods, an extension of that effect seems inevitable. Among the post-Christmas trading confessions came gloomy news from Matalan, whose largely out-of-town stores seem to have been the victim of the somewhat similar offering that can be found at Asda and Tesco, without the convenience of having food under the same roof.
There were grim figures, too, from W H Smith, accompanied by the ritual beheading of the director in charge of the UK stores. What, asked the cruel City, is W H Smith actually for, when Tesco and Asda sell newspapers, magazines, stationery and cut-price bestsellers? The relentless march of the supermarkets is forcing most of the high street to confront that question. Humans like variety in their lives and will not hand over to Sir Terry every penny that they spend. But if he makes it easy and cheap for them, they will be prepared to give him more than they do now. The balance will have to be fought for, and only those who can provide a degree of excitement and products beyond those stacked on the supermarket shelves will stand a chance of winning customers.
Is Tesco’s dominance good for consumers?
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