Dave Lewis’ resignation as Tesco CEO: What the industry experts say

Dave Lewis' resignation as Tesco CEO: What the industry experts say
Tesco revealed that Dave Lewis will be stepping down as CEO in its half year results this morning. (Image: PA)
// News that Tesco CEO Dave Lewis has resigned sent shock waves throughout the retail industry
// Lewis will depart from the UK’s biggest retailer next summer, after being in the helm since 2014
// Industry experts say his replacement, Ken Murphy, has big shoes to fill

When Tesco chief executive Dave Lewis announced he would leave the Big 4 retailer next summer, the news had a rippling effect not just across retail but also the City.

After all, Tesco is regarded as the UK’s biggest retailer, with over 6000 stores and thousands of employees – not just in the UK but also abroad.

It has a market cap of £28.93 billion at the time of writing, and it’s the highest-ranking retailer in the coveted FTSE 100, currently sitting at 23.

Shortly after he took the helm in 2014, Lewis implemented a turnaround plan for Tesco as the Big 4 giant reeled from a multi-billion pound accounting scandal that was blamed on a trio of former senior executives.

READ MORE: Tesco CEO Dave Lewis resigns amid half year results

Lewis, who announced his resignation amid Tesco’s half year results this morning, said he believed the turnaround plan was now “complete” and that his decision to move on was a personal one.

Tesco chairman John Allan said Lewis had told him a while ago that he was considering the best time to hand over his role to a successor, which prompted Allan to begin a “thorough and orderly process to identify a potential candidate”.

Lewis is set to leave Tesco next summer, and will be replaced by “Boots lifer” and Irishman Ken Murphy upon his departure.

Murphy rose through the ranks at Boots and held a raft of executive positions at the retailer and its parent company before becoming chief commercial officer and president of global brands at parent Walgreens Boots Alliance.

Following a series of deals that eventually saw Boots become part of US giant Walgreens Boots Alliance, Murphy ended up as an executive vice president, reporting directly into the group’s chief executive Stefano Pessina.

Murphy stood down from the role in January, reportedly to move his family back to the UK.

Dave Lewis' resignation as Tesco CEO: What the industry experts say
Retail experts say Ken Murphy has big shoes to fill once he takes over as the new Tesco CEO.

When he takes on the top job at Tesco, his basic salary will be £1.35 million a year with pension contributions of 7.5 per cent

Lewis had a base pay of £1.25 million with pension contributions of 25 per cent.

But questions have been raised as to Murphy’s relatively low profile and why Tesco did not look internally for a successor to Lewis.

“What Dave Lewis will do next is unclear, but the bigger question is why Tesco overlooked an array of internal candidates for the new chief executive position and have gone outside and appointed Ken Murphy from Boots (aka “Ken who?”) as the new Tesco boss,” independent retail analyst Nick Bubb said.

However, Markets.com chief market analyst Neil Wilson said Murphy’s “solid pedigree” at Walgreens Boots would stand him in good stead, especially given his experience at the health retail giant when it underwent heavy cost cutting amid pressure on earnings.

“He’ll need to employ these skills at Tesco where he’ll have to contend with tougher organic comparisons post the Lewis era,” Wilson said.

“Moreover, the battle with the discounters is only just starting.”

Lewis has been credited for handling both the battle against slimming profit margins and pressure from the likes of German discounters Aldi and Lidl, and for achieving the job of returning Tesco to profitability in his turnaround scheme.

Shore Capital retail expert Clive Black said that has a result, Murphy had “big shoes to fill”, but added that the City has been left waiting for his “thoughts and plans” on heading up Tesco.

Nick Everitt, advisory director at Edge by Ascential credited Lewis for the “strong team” he created to help achieve his turnaround scheme, but warned that Murphy had some tough calls to make.

“There are some big questions hanging over Tesco right now,” he said.

“What is its international business footprint going forward? What is its long-term plan for ecommerce and digital? These things are currently unclear.

“It takes a new chief executive to address these points and build on the stable foundation that Lewis created. It’s a fine balance that Murphy must strike.

“He has to stamp his authority on the business but bring the existing leadership team with him, maintaining the momentum that Lewis started.

“If he can do this, Tesco will find a way forward.”

Dave Lewis' resignation as Tesco CEO: What the industry experts say
Dave Lewis started as Tesco CEO at a time when the Big 4 giant was in the midst of financial turmoil. He has since been credited for returning it to profitability thanks to his turnaround scheme.

GlobalData retail analyst Thomas Brereton said Lewis was “certainly positioned to leave on a high”.

He said that although Tesco’s half year results mark a small dip in form – compared to a rapidly recovering Sainsbury’s, its main rival – Lewis’ “impressive legacy is set to be one of consistent profitable improvement” over a challenging five-year period.

“Murphy will need to hit the ground running when he arrives in mid-2020,” Brereton said.

“Although the Brexit haze should have cleared by then, Tesco – along with the rest of the sector – will likely be still experiencing a hangover caused by the disruption.

“The challenge for Murphy will then be transitioning Tesco to a market-leading innovator without damaging the steadfast, profit-generating machine it has become under Dave Lewis.”

Jonathan Reynolds, academic director the Oxford University’s Institute of Retail Management also highlighted Lewis’ “extraordinary transformation” of Tesco.

“We tend to forget the scale of the challenge at the time: turning around a business which had generated a near £7 billion loss and lost the trust of many of its suppliers and customers,” he said.

“Whilst the job is not completely done – such jobs never are – he leaves Tesco in a substantially better place.”

He added: “It’s pretty rare and mature for a chief executive – or indeed any leader – to recognise the right time to leave an organisation: to quit while they’re ahead.

“It’s also testament to the professionalism of the business that the succession question has been resolved at the same time.

“The fact that is a surprise even to many seasoned commentators speaks well of the process and that the business has regained confidence in itself and its future.”

Freddie Lait, chief investment officer at Latitude Investment Management, agreed.

“Nobody would deny that at the time of Mr Lewis’s appointment Tesco was in trouble and needed a pragmatist who could come in and refocus the business on its core competencies,” he said.

“While only half year results, we see the financial performance of the group as verification that the situation is now far more stable and positioned for compounding growth.”

He added: “[Lewis] has done an exemplary job and other chief executive going through difficult stages in the business life cycles could learn huge amounts from his clear thought process, fairness, clarity in presentation of financial accounts, and straightforward approach to getting the basics right first.”

Lait also said Murphy has a “plethora of fantastic opportunities” ahead of him, from Tesco’s Booker supply and convenience store business, increased Clubcard usage, and new store formats like the Jack’s discount fascia.

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