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Dave Lewis, the CEO of Tesco, said yesterday that the market is "still challenging." That may be the understatement of the year, as Tesco reported an annual loss of $9.5 billion (US), which the New York Times described as both the worst in the company's near century of operation and "one of the biggest in British corporate history."

The Times reports that Tesco conceded being hurt on a number of fronts. There was the accounting scandal in which it said that in the past there had been the overstatement of revenue and understatement of costs, as well as heightened competition from discounters such as Aldi and Lidl, which had the dual effect of forcing it to lower prices even as customers were deserting its stores for lower-cost alternatives.

Furthermore, Lewis said that "we are not expecting any let up in the months ahead."

According to the Times story this morning, "Tesco's trading profit was 1.4 billion pounds, in line with company guidance but less than half of the 3.3 billion pounds made the year before and a third straight year of decline.

"The firm also revealed it had net debt of 8.5 billion pounds and a net pension deficit of 3.9 billion pounds. It has agreed a deal with the trustees to pay 270 million pounds per year into the scheme to help make up the shortfall.

"Tesco's property writedown follows similar moves by rivals Sainsbury's and Morrisons and reflects the deterioration in UK grocery market conditions in recent years. It is on top of about 4 billion pounds of charges Tesco has taken over the last three years."

One UK analyst said that this announcement marked "the official end of the Tesco era."

(In perhaps a indication of what was to come, the week started off poorly for Tesco when its consumer broadband service went down, leaving many of its users without service for much of the day Tuesday.)
KC's View:
To be fair, Tesco did say that same-store sales were up - a bit - in the UK, and there seems to be a general consensus that Lewis is the right person in the right place. So that's at least a bit of a silver lining. But it ain't much to hang your hat on.

Part of Tesco's problem, of course, is that while it tries to steady the ship, the competition continues to move ahead. It is a dynamic market, and it is hard to overestimate the impact that discounters like Aldi and Lidl are having there. At some level, that should be a concern to US retailers, and Aldi continues to grow and Lidl plots a US strategy - companies like these can roil a marketplace. One needs to have a strategy in place to deal with such problems early.

It remains amazing to me that Sir Terry Leahy, the former CEO of Tesco, seems to escape most of the scrutiny, with more of the blame for Tesco's problems falling on his successor, Philip Clarke. Sure, Clarke didn't fix systemic problems at Tesco, but he also was dealing with competitive and infrastructure cards dealt to him by Leahy; furthermore, it always is difficult for a new CEO who comes from inside the company to make the kinds of dramatic changes that Lewis is now making. And that's a lesson for succession planning.

Jeff Immelt, the CEO of General Electric, faced the same kind of problem when he took over the company from its high-profile and iconic CEO, Jack Welch. He recently said that the challenge is "to drive change every day without ever pretending anything was ever wrong ... It takes confidence and it takes time.”

Lewis seems to have confidence, but the question is how much time he has.