Tesco(LSE: TSCO) has now been struggling for years to turn its core business around and return to growth, without much success.
But after reporting a 260m profit overstatement earlier this year, Tesco has been forced to make some drastic changes. These changes are not just limited to Tescos customer offering.
Under the stewardship of the retailers new CEO, Dave Lewis, Tesco is restructuring its management team, removing the old guard and bringing in a new team with new ideas.
Out with the old
Last week it was revealed that Tesco had removedat least three of thesenior executives, who were asked to step aside in September when it discovered that first-half profits had been overstated. The directors heading for the door in this case wereKevin Grace, group commercial director, Carl Rogberg, UK finance director, and John Scouler, UK food commercial director.
Then, at the beginning of this week, it was announced thatChris Bush, managing director of the UK business, and another one of theeight senior managers asked to step aside in the wake of the accounting scandal, had both been asked to leave the company. However,Matt Simister, who had initially been asked to step aside, was brought back after co-operating with management to resolve accounting issues.
The executives leaving the company will be replaced by insiders. Dave Lewis himself will take over as head of the Tescos domestic business.
Whats more, the roles ofchief creative officer, group business planning and strategy director have been eliminated. Executives in these positions are now set to leave the retailer.
Gearing for growth
Tescos management reshuffle is great news, for me. The company has cleared out much of the old guard and eliminated some layers of management, which should help reduce costs and increase efficiency. Further, Tescos new management team should be able to bring new ideas to the table, something the old management team failed to do.
Indeed, one of the executive replacements isRobin Terrell, the head of online, who has now been placed in the position of marketing director. As e-commerce and digital marketing becomes increasingly important for supermarkets, Mr Terrell should be able to draw on his online sales experience to boost the Tescos online presence.
Moreover, Dave Lewis self-appointment as head of Tescos UK business should helpfocus the CEOs attention on the most important part of the group. According to some analysts, Tescos domestic UK business has been neglected for years and is in serious need of regeneration.
The bottom line
Overall, Tescos drastic management changesshouldclear out the old guard and bring in new faces with new ideas. The company has also slimmed down its management structure, which should help reduce costs and increase efficiency.
So, Tesco’s recovery is starting to take shape but the group’s turnaround won’t happen overnight.
Still,Tesco’s most attractive qualities is the company’s dividend payout. While the company may have slashed this year’s payout, City analysts still expect the company to offer a yield of 2.8% next year. Reinvesting this payout will turbocharge your returns when Tesco’s recovery finally gets under way.
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Rupert Hargreaves owns shares of 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.