DIY retailers likely to be next to use Tesco's Amazon-style ‘Market Place’

Tesco is to report its lowest rate of profit growth for seven years as it unveils a strategy to revamp its UK business and compete with Amazon online.

In the supermarket's full-year results to be announced this week, pre-tax profits are expected to hit £3.64bn, a modest 2.8pc increase on last year's £3.54bn, according to the consensus of analysts that follow the company.

This would be the lowest rate of profit growth for seven years and follows a disastrous profit warning at the start of the year when Tesco admitted it had failed to win over customers from rivals during the crucial Christmas period.

It has also said it needs to invest "hundreds of millions" of pounds improving its British shops.

UK profits are expected to have stood still, with JP Morgan Cazenove, a house broker, forecasting operating profits flat at £2.5bn, with operating profit margins falling from 6.24pc to 5.9pc.

Group profits will be boosted by a strong performance from its Korean business, and some of its European shops, as well as a cut in losses from its struggling US grocery chain, Fresh & Easy. Analysts believe losses in America will have fallen from £180m to about £120m. The company is expected to confirm it will break even by this time next year.

Tesco chief executive Philip Clarke will launch a major new strategy on Wednesday including new levels of service, "warmer" UK stores, which some close to Tesco believe have become "too cold and industrial", and a new online service which executives say could rival Amazon.

Customers visiting Tesco's website will be able to buy goods from rival retailers for the first time, as Britain's biggest supermarket attempts to take on the US online giant.

As of last week, shoppers could buy plants and garden equipment from Crocus, an online horticultural retailer, which now sells via Tesco.com. The supermarket intends this to be the first of many third-party retailers to use their website as "an online shopping mall", with Tesco receiving a cut of every sale.

It is likely that the next retailers to join the Market Place, as Tesco calls it, will be DIY retailers or homewares specialists, able to offer a wider range of niche goods than the supermarket can supply.

The company's opening-up of its website to third parties is part of its strategy to significantly expand its click-and-collect service, which allows shoppers to buy online but pick up parcels from their local shop, rather than wait for home delivery.

Mr Clarke will announce it has increased the number of shops from which customers can collect goods from 500 to 800. He will say he has the ambition to see all 2,715 Tesco branded shops become part of the click-and-collect service.

One insider said the Market Place was a logical step, as it sought to sell more non-food goods online. "We have the ability to deliver to the store. That's what gives us the advantage over Amazon."

Jonathan Pritchard, analyst at Oriel Securities, said it was likely recent trading had improved in the UK but only because the company had been promoting heavily such as offering customers £5-off vouchers when they spent over £40.

Many believe that the company will need to spend more than the £400m that Tesco has indicated on improving its store portfolio.

Neil Woodford, fund manager at Invesco Perpetual who at the start of the year owned about 170m Tesco shares and has now sold his entire stake, said that the company was not generating enough cash and at risk from resurgent competitors.

Source : Harry Wallop – The Telegraph
www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9204953/Struggling-Tesco-to-take-on-Amazon.html