On Wednesday Philip Clarke unveiled his much anticipated plans for turning around the domestic woes of Tesco. As UK profits and market share continued to edge downwards, Clarke revealed a back to basics approach in a bid to re-engage with customers and refresh the Tesco brand.
As well as increasing staff and investing in store and marketing revamps at a total estimated cost of £1bn, Tesco finally looks set to reign in the aggressive big-box growth strategy that has made big retail chains a ubiquitous feature of the British landscape. In the coming year Tesco said it plans to add 38 per cent less space than it did last year focussing on the “express” format smaller convenience stores.
It seems that Clarke has come to believe that bigger isn’t necessarily better on a global scale and is rolling out smaller and less capital intensive formats around the world, with smaller stores accounting for 39 per cent of European store openings in 2011 and expected to account for 49 per cent of the planned openings in the fast-growing Asian market this coming year.
The change in tactics by Tesco is nothing new to UK retailers. Before the credit crunch of 2008 hit consumer wallets hard there had been a creeping decade-long trend towards convenience-store layouts in cities, bolstered by rising incomes and higher workforce participation which signalled a consumer preference for quick and easy transactions over price sensitivities.
While the economic downturn has made consumers more cost-conscious, the proliferation of big-box formats has reduced the return on capital they can offer compared to smaller, more focused outlets. As consumers increase reliance on multiple channels for shopping, notably online, retailers also need to adapt.
Smaller scale hard discounters with limited product lines such as Aldi and Lidl showed that considerations like service and choice are less important to some than price in these times of austerity. The rise of online sales, especially for non-grocery products, also made big box expansion into areas such as film, music, and consumer electronics seem superfluous. Rapid expansion has the potential to become brand damaging, with big retailers such as Tesco increasingly coming into conflict with regulators and communities over planned large-scale openings.
In shying away from big-box expansion, Philip Clarke has highlighted an important underlying shift in retailer emphasis, which is not particular to Tesco, but rather underpins the global development of retail store formats. Instead of making consumers come to them, retailers face the prospect of having to bring their goods and services to consumers. Sellers need to be where their customers are and not the other way around. For the day-to-day needs of the consumer, smaller box convenience stores have become the staple format. Meanwhile consumers are increasingly going online or using mobile devices like tablets or smartphones for bigger ticket or choice driven purchases.
For big-box stores this presents something of a problem. Consumers are less inclined to drive to an out of town location to wander around a store that may or may not have what they want. Instead, they can now choose the best price from an unlimited range online and then have it delivered, or collect it from a chosen location, at their convenience. Equally, impulse buying that the internet cannot fulfil relies on location. If a consumer wants something immediately it must be easily accessible from work or home, which is where smaller scale convenience formats pick up the slack.
Clarke’s announcement on reeling in growth in store space echoes the decision a few weeks ago by US retailer Best Buy to close 50 of its signature big box stores in favour of 100 smaller targeted stores. Best Buy’s announcement prompted some commentators to begin writing obituaries for the big box format, a sentiment that is bound to have