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Tesco turns focus on general merchandise after flat UK performance

Tesco has vowed to improve performance in general merchandise, which includes clothing, after its sales in the category were flat in key territories like the UK.

Tesco’s general merchandise, clothing and electricals sales grew by 0.4% to £5.3bn in the UK, in the year to February 26, compared to an 8.8% increase in group sales in the category to £10.3bn.

The value giant said the business had “continued to grow, despite the challenges of weak demand in some of our important markets – not least the UK”, and that it was working on improvements to ranging, merchandising, pricing and promotions as a matter of priority.

The retailer said general merchandise sales growth was also affected by a proportionately lower increase in selling space for general merchandise compared to other categories, with extensions providing just 10% of new space.

In central Europe, general merchandise sales were strong, reflecting an improvement in consumer confidence in those territories.

Clothing sales increased by 9% at constant exchange rates in the region and Tesco is now clothing market leader in Hungary and the Czech Republic and Slovakia.The retailer also said that the performance of its Florence & Fred clothing range was key to its success in these markets.

Tesco reported that overall trading profit, across all categories, was up 7.8% to £3.7bn with strong growth in Asia, but the grocer said it needs to “do better” in the UK.

Group sales were up 8.1% to £67.6bn, and a 12.3% rise in underlying pre-tax profit to £3.8bn.

In the UK, like-for-likes for the year excluding petrol and VAT were flat, with a fall of 0.1% in the second half, comprising 0.5% up in the third quarter, and down 0.7% in the fourth.

UK total sales were up 5.5% to £44.571m and trading profit up 3.8% to £2,504m.

New chief executive Phil Clarke said he has set out some immediate objectives for Tesco: “Firstly, to keep the UK strong and growing, second to be outstanding internationally, not just successful.

“Thirdly, to become a multichannel retailer wherever we trade, and fourthly, to develop the potential of retailing services.

“Fifth, to apply group skill and scale to give even more value and increase competitive advantage to its business, and lastly, to deliver higher return on capital employed for shareholders.”

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