FormerTesco(LSE: TSCO) boss Sir Terry Leahybelieves that the worst is now behind the UKs three largest publicly traded retailers, Tesco, J Sainsbury (LSE: SBRY)andMorrisons(LSE: MRW).
Speaking on a conference call to analysts, the retail veteran referenced Tesco in particular when he made these comments. Indeed, Sir Leahy believes that the company has fallen out of touch with its core customers.
However, now that the company knows whats going wrong, Tescos former boss believes that the speed of the companys recovery could surprise all stakeholders, including analysts, shoppers and shareholders.
A key part of the retail sector recovery will be a recovering economy. Low wage growth and rising inflation has driven shoppers towards discounters, despite their limited offerings and lack of customer service. And for these reasons, Tescos will be able to stage a comeback.
Tesco was a pioneer in using customer data to tailor rewards and offers, something other retailers are only just staring to offer. Its estimated that the data analysis division of Tesco could be worth around 2bn as a standalone entity.
Further, Tescos size and position in the UK retail landscape will allow the company to dominate smaller peers. Data analysis is only part of the equation. Lower fuel costs should also help the retailer stage a comeback and the new management team, led byDavid Lewis will be able to use the companys mistakes made over the past few years as an excuse to execute an aggressive turnaround strategy.
Hopefully, Lewis will move quickly to reverse Tescos fortunes than previous CEO Philip Clarke, who took a wait-and-see approach.
A different approach
Tescos has the size and data to execute a turnaround butMorrisons and Sainburys lack the same kind of market dominance.
Nevertheless, there are signs that the two retailers are now starting to get their act together and instigate a turnaround. For example, Morrisons is well aware that it has lost its way over the past few years. An ill-fated attempt to go upmarket alienated customers and the groups slow entry into the online marketplace, as well as a lack of customer loyalty schemes put the company at disadvantage to peers.
However, now the group has started to get its act together. Prices have been slashed across the board, a loyalty card has been introduced and initial figures indicate that customers have flocked to Morrisons online offering.
Mixed opinions
Meanwhile, Sainsburys is trying to take the discounters on at their own game. In particular, the group has launched a joint venture with Danish discounter Netto. Sainsburys willopen 15 Netto stores within the North of the UK, a region where the supermarket is under represented.
While this joint venture has split opinions some analysts believe that the company should concentrate on its existing offering before branching out it does show that Sainsburys is taking action. After years of growth, the companys sales have started to slide recently but the tie-up with Netto shows that the group is not going to stand by and let the discounters steal market share.
Only time will tell
Still, only time will tell whether or not the worst is over for Tesco, Morrisons and Sainsbury’s but it’s going to be some time before the retailers can claim to have made a full recovery. If you’re not prepared to wait then there are other opportunities out there.
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Rupert Hargreaves owns shares of Morrisons and Tesco. The Motley Fool UK owns shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
