Tesco must take care not to neglect its F&F clothing arm as the crisis-stricken supermarket is forced to concentrate on problems at the top of the business, industry insiders have warned.
This week Tesco was left reeling after admitting it had overstated its profit forecast for the first half of the year by £250m. The issue was identified in the most recent profit warning, released in August.
New boss Dave Lewis immediately launched an independent investigation and four executives, including UK managing director Chris Bush, have been suspended. The revelation also prompted Tesco to bring in former M&S chief financial officer Alan Stewart this week, two months earlier than planned.
The latest sales figures from Kantar Worldpanel for the grocery sector this week added to Tesco’s troubles, showing its sales fell 4.5% in the 12 weeks to September 14. Asda was the only one of the big four supermarkets to post a rise, of 0.8%, piling further pressure on F&F by key rival George.
While analysts suggested the accounting errors and senior staff suspensions were unlikely to have an immediate direct negative impact on F&F – as the problems are focused on Tesco’s separately run grocery division – the company has been urged not to lose focus on growing the fashion arm.
Maureen Hinton, global research director at retail research firm Conlumino, said: “F&F may be in danger of being neglected as Tesco looks to sort out the core part of the business. It needs to be taken care of as the clothing sector has higher margins than other areas of the business, plus it is an established brand and a standalone brand on the continent – it would be unwise to let that slip.”
Analysts also agreed the fall in sales could impact the clothing operation, which may be exacerbated if consumers lose confidence in Tesco.
Neither Kantar nor Tesco reveal a breakdown for F&F sales.
“F&F has seen an impact, as food and grocery sales are under increasing pressure at Tesco due to lower footfall, which reduces the opportunity for the supermarket to sell clothing,” said Hinton. “Supermarkets like Tesco rely on steady footfall to sell their clothing.”
One analyst, who asked not to be named, said: “F&F could be caught in the crossfire with the lack of footfall. It could be interesting to see if online can pick up the slack.”
Mike Dennis, managing director of consumer staples at financial analysts Cantor Fitzgerald, added: “Certainly if footfall continues to fall as it has, this will impact F&F.
“Dave Lewis now has 100 days or so to get some answers and a strategy together so if that means recycling some space in larger-format stores, which could include space used by F&F, I suspect that will become clear in April when the annual results come out.”
Independent retail consultant Nick Bubb agreed: “The biggest impact the current sales slump will have is that they will be forced to reduce hypermarket space. Tesco has by far the biggest share of hypermarkets, which stock F&F.”
Tesco would not comment further on any potential impact on F&F.