A leading retail analyst has suggested that UK retailer Tesco might be doing "too much, too soon" in terms of seeking to turnaround its performance in its home market.
Stifel’s James Collins said that it was downgrading its recommendation for Tesco from hold to sell, saying, "We think Tesco is executing far better in UK stores, with a significantly improved value proposition, and that this is likely to sustain the recent improvement in trading.
"However, we think the market has become too optimistic about how quickly this might translate into meaningful profit improvement."
Collins suggested that "ongoing structural pressures" will mean that Tesco management will be required "to reinvest gross-margin gains back into the proposition for some time".
He also said that Stifel is "not [a believer] in the idea that Tesco’s relative scale should deliver a material margin advantage versus competitors".
The rise of Amazon was also cited as a potential cause of concern for the UK’s largest retailer. "Tesco also has the most to lose if, as we expect, Amazon puts online grocery profitability under pressure," Collins added.
© 2016 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. To subscribe to ESM: The European Supermarket Magazine, click here.
