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Tesco scraps plans for new hypermarkets

Tesco will halt the roll out of its biggest UK stores in favour of smaller schemes, online sales and international growth

The supermarket issued a profits warning yesterday (12 January), and Philip Clarke its chief executive pledged to decrease its UK capital expenditure.

‘What is emerging is a clear picture where the very big out of town and edge of town hypers don’t need to be increased by very much because of the development of the internet,’ he told AJ’s sister publication Construction News.

‘That is the place we should really be putting our emphasis. You will see food stores in the UK and you will see small hypers but no more, or few more, of the big ones’

The strategy was to improve existing stores, scrap growth in hypermarkets and improve the online non-food offering, he said.

‘We do intend to grow our online non-food business because, surprise surprise, that is where most customers are looking to turn.

‘We will still open a lot of space in the UK. We can see lots of places where we think Tesco should be but not with 108,000 ft² battleships, more likely they will be 40,000-60,000 ft² cruisers.’

However outlay on stores would shrink in the coming years.

‘It would be fair to say that our capital expenditure in 2012-2013 will be lower than the market was expecting,’ he said.

He denied that the existing hypermarkets were white elephants, adding that the reduction in new big stores would not negatively affect property values.

‘We are not talking about the stores which are already trading. We are talking about the places we might have chosen to go to in the past and we won’t in the future. I think it is going to be fine for property valuations.’

Shares tumbled 15 per cent as the supermarket warned that its Christmas trading performance was its worst for several decades.

Sales at UK stores open over a year fell 2.3 percent excluding fuel and VAT in the six weeks to 7 January.

The retailer added that UK profits in the next year could also fall.

In a trading update to the market, the group said: ‘In a challenging consumer environment at home, and with early signs of more cautious behaviour emerging elsewhere, we have seen more strain than anticipated on our profitability during the important seasonal trading period. As a result, while underlying profit before tax and earnings per share for 2011/12 will be broadly in line with market consensus forecasts, we expect Group trading profit growth to be around the low end of the current consensus range.

‘Our plan for 2012/13 now reflects substantially increased investment to deliver an even better shopping trip for customers – particularly in the UK. Consequently, we anticipate minimal Group trading profit growth for the year.

‘An important element of our plan for 2012/13, as we signalled at our Interim Results, will be reduced levels of capital expenditure as we modify our approach to UK expansion.’

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