Is Tesco a lesson in taking your eye off the customer?

tesco bagTesco’s share price has fallen 50% in a year. Profits dropped 6% in the year ending April 2014. In July, the CEO stepped down after failing to turn the company around. And, today, the company announced a “profit hole” of £263 million. It shouldn’t be a surprise then to hear that the company’s Chairman, Sir Richard Broadbent, has also announced his departure.

I was in London three years ago when former CEO, Sir Terry Leahy retired as Chief Executive, and it was front page news in every British broadsheet. Leahy had overseen the rise of Tesco from a perennial follower to Marks & Spencer and Sainsbury to become the largest British retailer, and the third largest retailer in the world measured by revenues.

And, Tesco had been an admired company. Their focus on the customer, and their success with the Tesco Clubcard made Tesco a “go-to” case study on how to leverage customer intelligence to provide personalized benefits to individual customers. And, thanks to the Clubcard success, dunnhumby became a household name among retailers.

But, thinking back to when Leahy stepped down, I remember reading the multitude of articles about the firm’s success and about its future. And, there were warning signs then. Over-reach in the US and outdated stores were cited concerns, but more troubling still was the reference to the firm taking their eye off the customer.

What’s happened over the past several years? Rewards for being a Clubcard member have been cut back, and according to press reports interviewing “insiders”, the focus shifted from the customer to making sure Tesco didn’t miss its numbers. Well, as Rick Perry would say, “Ooops!” Unfortunately, now for Tesco, they can only hope to be a case study of another kind – the turnaround story. A retail analyst with HSBC reckons a turnaround could cost as much as £3 billion.

From the outside looking in, it seems like Tesco shifted from an engagement strategy to a revenue strategy. And, if so, it backfired! While there are always a myriad of reasons for business success or failure – not all of which are visible from the outside looking in, I’ll be watching intently to see whether, and how much, the pendulum shifts back to the consumer – and to observe whether any such shift correlates with a return to business success.

Here’s wishing Tesco’s new executive team and board members all the success in the world!

Cheers,
Dave

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