Next time NatWest charges me £35 for breaching my modest overdraft limit by, say, £15 for part of one day, I shall offer in my plea for clemency the case of this week’s accountancy nightmare from Tesco.
Let’s face it, anyone can make a mistake doing a bit of adding up, can’t they?
From an astonishing series of revelations, we know that the UK’s biggest retailer overstated its expected £1.1bn profits for the six months to August 23 by no less than £250m. This devastating blow to the reputation and competence of the business looks set to run for quite some time as Dave Lewis, the chief executive who joined Tesco only three weeks ago, and auditor Deloitte and law firm Freshfields, try to get to the bottom of this financial car crash.
The correction to the forecast put out on Monday was, effectively, the grocer’s third profit warning in a few months. The City showed what it thought of the debacle immediately and Tesco’s share price dropped 12% on Monday and 4% on Tuesday, taking it to 194.5p, the first time it has been below 200p in 11 years. Things could get even worse as the Serious Fraud Office is waiting in the wings to see if it needs to become involved.
It seems the problem arose from Tesco prematurely stating the benefits of “supplier rebates”, a polite way of describing the practice of squeezing the spheroids of its suppliers. Being blamed are the aggressive partnership tactics of the former chief executive Phil Clarke, who was ousted in July but was in charge of Tesco’s accounting practices during most of the six months under review following the departure of finance director Laurie McElwee in April. The new financial director, Alan Stewart, was sportingly released from gardening leave by Marks & Spencer to join Tesco on Tuesday. He’ll be busy.
Others in the top echelon of retailing may be having nervous conversations with their own auditors about the Tesco debacle as my guess is that it is not the only company to have perhaps an idiosyncratic approach to accounting. The spotlight shone on relationships with suppliers will not enhance the reputation of big retailers either. And in Tesco’s case this will not make it any easier for Lewis to win back the trust of the consumers who have already stopped shopping at the supermarket.
On a separate fashion note, Drapers has noticed a lot of Twitter criticism about the choice of models for the latest F&F TV ad campaign; they are far too thin for some of Tesco’s target customers, apparently.
Elsewhere this week I have been underwhelmed by the performance of our political leaders.
Pleased as I am that Scotland is still an essential part of the UK, David Cameron appears to be making up national constitutional reform on the back of a beermat, while Ed Miliband blends wishful thinking with a worrying tendency for amnesia. Neglecting to mention the deficit or immigration in his Labour conference speech is amazing - take my word for it, Ed, autocues are really helpful - while his headline-grabbing desire to move the minimum wage up to £8 an hour shows a severe disconnection with reality.
Store owners who already pay above the minimum wage of £6.50 (as it will be from October 1) will be affected as they will need to maintain their pay differential.
Much as I would like to see the lot of lower-paid workers improve, Miliband offers no idea of how, in our still-depressed sector, many hard-pressed fashion retailers, especially in the independent sector, are going to fund a significant increase in their fixed costs.
Perhaps he should hire a consultant from Tesco to advise him.