Tesco To Cut Losses On US Chain Fresh & Easy

Mark Kleinman, City Editor
Tesco To Cut Losses On US Chain Fresh & Easy

Tesco is to launch a review of its loss-making US operations as its chief executive attempts to convince the City that he has a credible strategy to boost the fortunes of Britain's biggest retailer.

I have learned that Philip Clarke will announce today that Tesco is to undertake a strategic review that could lead to the sale or closure of some or all of its US stores. Investment bankers have been appointed to assist with the review, which is expected to take several months.

The statement will signal an ignominious end to Tesco's US ambitions, five years after it opened its first shop there under the Fresh & Easy brand name.

It will also cast a pall over the legacy of Sir Terry Leahy, Mr Clarke's long-serving predecessor, who stepped down last year. Under Sir Terry, Tesco embarked on a plan to emulate the global footprint of Wal-Mart, the owner of Asda, by acquiring and building market share in eastern Europe and Asia.

Tesco operates approximately 200 Fresh & Easy stores, and employs roughly 5,000 people in the US. Since the business was launched, it has accumulated losses running into several hundred million pounds.

Mr Clarke is already under pressure because of the group's sluggish performance in its home market, and has unveiled a £1bn transformation programme focused on improving customer service and the availability of fresh produce in its shops.

The news about the US review come alongside Tesco's third-quarter results, which are expected to reflect the ongoing travails of much of the British retail sector.

George Osborne, the Chancellor, will undoubtedly be keen to see what Mr Clarke says about the health of the high street in the run-up to the crucial Christmas trading period as he makes final preparations for his Autumn Statement.

While Tesco has been treading water under its new boss, rivals including J Sainsbury and Waitrose have been performing strongly.

There was, however, a glimmer of good news for the biggest supermarket chain, with the Financial Times reporting that industry data showed Tesco enjoying stronger-than-expected sales growth in recent weeks.

Tesco declined to comment on Tuesday evening on its plans for Fresh & Easy.

Today's news about the US is likely to please the City, although seasoned Tesco-watchers have been anticipating the development since Mr Clarke said in October that he needed to be persuaded that the US arm had a future in the group.

It is unclear whether there will be a serious appetite from third parties to buy the Fresh & Easy chain, which leaves open the prospect that Tesco may have to make significant lay-offs as part of its plans to exit the US market.

Theoretically, its strategic review could involve Mr Clarke determining that Tesco should persist with its efforts to conquer the US, but analysts said that was highly unlikely.

"He needs to show some clear leadership on this," one said. "Doing nothing is not an option."

The news of Tesco's decision to review its US business comes as it emerged that another British retailer has rather different expectations for its operations in the country.

As I reported earlier on Tuesday evening, Sir Philip Green is to sell a 25% stake in Arcadia's Topshop and Topman chains to Leonard Green & Partners, a private equity group.