The Big Friendly Giant? Will Tesco’s shift in direction change how we view retail
06 March 2012
Yesterday (5 Mar), Tesco boss Philip Clarke announced a shift in the company’s direction. After a poor fourth quarter in 2011, the heavy-hitting supermarket chain is to invest more in the quality of its fresh produce and customer service, as well as in the choice of products on offer. This is an interesting development which, if carried out on a large scale and replicated by other large retailers, may change how we view retail as a sector.
I tend to look at retail as three distinct groups of businesses. Firstly, there are the larger, non-specialised shops such as supermarkets, which employ around 1.2 million people, around two-thirds of which are in medium or large workplaces with more than 50 employees.* These have tended to compete on price, partly driven by more sophisticated and streamlined supply chains and partly by competition from online retail.
Secondly there are smaller, specialised outlets, which include anything from record shops to petrol stations to florists. These employ around 1.5 million people, but they tend to be concentrated in smaller shops, with 75% working in businesses with fewer than 50 employees. They flourish on either convenience or on the specialist knowledge and skills they can provide alongside their products.
Online and mail-order retail is the smallest of the three in terms of employment, but has experienced the largest growth. The British Retail Consortium estimates that online sales were up 11.3% on the previous year in January. This increase is projected to continue, particularly in mobile phone and in-app purchases, and make it an increasingly important area within retail. This sub-sector employs around 90,000, fairly evenly split across the smaller and more specialised and larger retailers.
How does Clarke's change of strategy alter this view, and what are the implications? Firstly, it signals that even for one of the UK’s largest non-specialised retailers, competing purely on price is not the only option. Customer experience and choice, often the preserve of the higher end and specialised sections of the market, can offer another way forward for giants such as Tesco. Recent research by the Big Innovation Centre pointed to the ‘experience economy’, the selling of goods and services with a particular focus on the needs of individual consumers, as a potential growth area for the UK. We may just be seeing a major sign of this shift within a retail context in yesterday’s announcement, with its focus on customer service, choice and quality.
Secondly, it has labour market implications. Recent research on the future of non-graduate work by the New Economics Foundation highlighted the retail sector as an increasing source of employment for non-graduates over the next decade. They found this concerning because retail tends to be a low-wage, low-progression business. But if Tesco is to be believed, spending on staff training may become increasingly essential to their business, as they want to equip their workers with better skills in order to better serve their customers. The real question is whether this will lead to a corresponding rise in wages and chances for progression for retail workers.
Retail remains an important sector in the UK, despite the beating it has taken over the last few years due to the recession and falls in consumer spending. Yesterday’s announcement provides a few clues as to the likely direction of travel of one major employer in this field, and may point towards future changes in the wider sector as well.
*Using latest available data which refers to 2010