The Markets

Tesco is a multinational grocery and general merchandise retailer headquartered in Cheshunt, Hertfordshire. After Walmart, it is the second-largest retailer in the world measured by profits and second-largest retailer in the world measured by revenues. Or, is it now?

With stores in 12 countries across Asia, Europe and North America, it is the grocery market leader in the UK (where it has a market share of around 30%), the Republic of Ireland, Malaysia, and Thailand.

The deepening woes of this supermarket giant Tesco have featured on many front pages over the past week, with four executives having been suspended after the firm overstated its half-year profits by £250m.

Storm clouds gathered over the retailer as its share price slumped and an investigation was launched in response to a whistleblower flagging up concerns over its finances. “Any warning that relates to such matters tends to be toxic for a company’s reputation,” says the Guardian’s Nils Pratley, adding: “The £250m figure is an early estimate. The final outcome… could be higher.”

An FT Q&A explains the background to the kind of revenue supermarkets receive from multinational suppliers, in exchange for their brands gaining prime position on shelves and promotional activity, along with the assumptions about these rebates that caused Tesco to overstate its profits.

What the company calls “accelerated recognition” of such rebates amounts to “counting profits before they had been rung up at the tills”, according to the Mail’s city editor Alex Brummer. “This is the kind of shoddy practice one might expect from struggling businesses way down the corporate pecking order. That it should come at one of Britain’s most respected FTSE 100 companies is astounding.”

The Independent says Tesco appears to be in a “downward spiral” but says it would be wrong to blame its demise solely on the rise of discount alternatives like Aldi and Lidl, arguing: “Many of Tesco’s problems are entirely of its own making.” The paper says the retailer “saddled itself with… unfriendly and antiseptic out-of-town warehouse-style supermarkets”, embarked on a botched “American misadventure” and took its customers for granted.

The paper’s retail correspondent Simon Neville says that while there’s no suggestion that former chief executive Phil Clarke played any part in the profit guidance error, “his legacy hangs in the corridors like a bad smell”. Meanwhile, the Daily Express quotes Mr Clarke’s replacement Dave Lewis vowing to turn around the store’s fortunes by focusing on the customer.

We shall see.

 
 
 

Lexington Wealth Management