Tesco has been urged to grasp the nettle by slashing prices and launching a raft of promotions in the run-up to Christmas in an effort to avoid a repetition of last year’s disastrous festive sales.
The warning comes as the retail giant prepares to unveil its latest results this week, which are predicted to show like-for-like sales for the third quarter have plummeted by as much as 2%, its third consecutive quarter of negative growth.
HSBC retail analyst David McCarthy claims the company should aggressively cut prices to recover ground more quickly than competitors. He said: “Tesco needs to make its offer compelling, needs to hurt its competitors and needs to rebuild. But before rebuilding comes demolition.
“We believe a margin fall is inevitable and a margin reset is necessary. In our view, Tesco should take its operating margin down to around 2%-3%, destroying competitors’ cash flows and profits. Tesco should then be able to recover more quickly than the competition.”
Chief executive Philip Clarke is now 18 months into a £1bn UK recovery plan, which has seen it put Clubcard at the heart of the strategy as well as revamp stores, improve food quality and hire more staff.
In March, it launched its Price Promise scheme – which matches the price of branded and non-branded products at Asda, Morrisons and Sainsbury’s – in an attempt to reinvigorate Clarke’s recovery programme.
However, the City expects this week’s results to make grim reading for the Tesco chief.
Shore Capital analyst Clive Black said: “Overall trade since late August has been weak and deteriorating across the UK grocery market and the major British supermarkets have been under pressure. Shore Capital is once again nervous about our financial forecasts for Tesco UK.”
Neev Capital retail analyst Rahul Sharma added: “If Tesco wants positive like-for-likes over Christmas then there is no solution other than implementing price cuts.”
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City urges Tesco to slash prices and boost Clubcard promotions as poor results loom http://t.co/YWWsWQqGut #directmarketing #digital #data