Gocer Tesco is expected to face a £1 billion bill to pull its floundering Fresh & Easy business from the US, it has been reported.
Following a strategic review of the business in December last year after the exit of CEO Tim Mason who had been with the retailer for 30 years, Tesco is set to write down the value of its assets in the US, including its wholly-owned stores, leases and distribution centre in California.
According to The Telegraph, Tesco CEO Philip Clarke is working on the details of the sale with discount supermarket Aldi understood to be interested, though a piece-by-piece sale of the retailer’s assets is most likely.
Last June, the grocery giant announced that it had signed a deal to exit the Japanese market after failing to make inroads in the country and the closure of its Fresh & Easy stores will mark an additional defeat in its ongoing expansion plans.
Clarke has been under pressure to review the business since he took over from long-standing chief Sir Terry Leahy in early 2011 and he has said of the move to exit the US: “This has not been an easy decision but I know it’s the right one.”
Last week, a survey by financial services provider Barclays carried out by analyst firm Conlumino found that the retailers continue to favour the US as the top choice for growth despite 46 per cent stating that it remains “the hardest market in which to achieve commercial success”.
The decision to sell the business in spite of substantial losses this would incur highlights the trading difficulties the chain is facing, warned Jon Copestake, retail analyst at The Economist Intelligence Unit.
“The £1 billion estimated write down cost of Tesco’s Fresh & Easy withdrawal highlights an expensive transitory period for the retailer abroad,” Copestake said.
“Tesco paid Aeon £40 million to offload its Japanese operations last June and this gives another, more substantial, blow to a bottom line already struggling with domestic share.
“However, the decision to finally jettison Fresh & Easy, which hasn’t turned a profit in six years of operating, should be welcomed as a positive, if belated, step.
“The exit cost looks high, but Fresh & Easy has already racked up an estimated £850 million in cumulative losses, with observers wondering why the current decision was not taken years ago.”