Following its announcement of poor trading over the weeks of Christmas, UK retailer Tesco has issued a profit warning for the first time in 20 years.
Next year’s underlying profit is expected to be approximately £450m (€540m) lower than anticipated, Tesco revealed, causing a drop in shares of 16 per cent and wiping £5bn (€6bn) off its market capitalisation, the Financial Times reported.
Neil Saunders, analyst for Conlumino, told the Guardian that Tesco had made a mistake by choosing to fight the Christmas sales battle on low prices alone, referring to the retailer's Big Price Drop strategy.
'This festive season was not about austerity,' he said. 'Consumers were willing to trade up and sought quality and value rather than just low prices. Tesco's marketing and promotion was not positioned to take best advantage of this.'
Kantar Worldpanel analyst Bryan Roberts believed that complacency had played a major part.
'Big Price Drop is clearly not enough to win shoppers,' he told the Guardian. 'Value is not just about price. It is also about standards, service, quality, and freshness and Tesco has been letting all of these slip.'
Chief executive Philip Clarke, who took on the role following Sir Terry Leahy’s retirement last year, said that the company would have to change, and promised to invest millions in improving the quality of its fresh food, its choice of products and its customer service.
He said that in the future Tesco would open fewer big Extra hypermarkets, which were key to the retailer's rise in the 1990s, signalling a possible end to the 'space race' that has been raging among the main supermarkets in recent years.
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