Tesco has been making the headlines over the last few days over the performance of the company and the strategy for the future of the company. This is a company who has a monopoly in its market and it is estimated that £1 in every £7 spend in the UK is in Tesco. Yet despite the rapid expansion and diversification over the past decade, Tesco is now starting to see sales go from growth to decline. This of course is blamed on the economy, changes in consumer social habits and of course the entrance of new entrants to the market such as Aldi, Lidi, Poundland and B&M.
Retrenchment is a business term for "getting smaller". This is what Tesco are looking to do. This is a strategy that will enable Tesco to cut its costs, something that will enable it to increase the overall profit of the business or enable price cuts on the items they sell, thus enticing more customers into the stores. This is really important for Tesco given the increase competitiveness in their core market.
Tesco if proposing to retrench though;
- Closing 43 unprofitable stores
- Shelving plans to open 49 Tesco Extra stores
- Reduce overheads by 30%
- Close the company staff pension scheme
- £250m of cost cuts planned
- Selling off of Blinkbox and Tesco Broadband / Home Phone to Talk Talk
All of this is a major change from the UK's largest supermarket. It will be interesting to see if this is the end of the retrenchment from Tesco and what will Tesco's rivals do next? Will they set about the same policy?
One final interesting note. The share price of Tesco actually increased on the news that Tesco was setting about retrenching.