Tesco increases European apparel sourcing
The CEO of Tesco has revealed the retailer is shifting more of its apparel sourcing to Europe and Egypt as part of moves to shorten lead times on clothing.
Philip Clarke told just-style today (5 October) that for the past 40 years, sourcing has primarily been done out of its Hong Kong office, but it is increasing the amount it buys from Europe and Egypt in order to fulfil orders on popular items.
"When you're onto a winner, and you're running short, and you need to ship more, you can get a six-week lead time out of Egypt," compared to 26 weeks from Asia.
The comments came as the UK's largest retailer recorded an "early improvement" in UK apparel sales, after recording declines last year.
Attributing the improvements to better product choices he said: "It's a new season and we've picked the new season's hot items better than we did a year ago, it's almost as simple as that. We've also bought in a much more targeted way, in that we've backed the winners and that's a sign of confidence in the buyers."
Clarke emphasised how the retailer is working to improve its products, "We're focusing a lot harder these days on the product we sell, wherever it is, whatever it is. And you'll see more to come".
Online clothing sales have seen significant growth, with sales up 40%, albeit from a "modest base". Meanwhile, the retailer still remains focused on improving its instore clothing presence, with plans to re-lay most of the clothing sections in its Extra stores, a move he described as a "big, important change".
Speaking about plans announced yesterday to expand its clothingattesco.com distribution to the rest of Europe, which will launch in English with British pounds as the currency, he said that the "next step" would be local languages, but suggested it would be some time before these changes were rolled out, saying: "next doesn't mean next week".
Tesco reported that general merchandise sales rose 2.8% in the six months to 27 August to reach GBP4.8bn (US$7.4bn). Like-for-like declines across the channel widened to 4.8% from a 3.3% drop in the same period last year.
In the UK, general merchanidse, clothing and electricals were down 0.9% year-on-year, which the retailer said "reflects the challenging environment". It also attributed the declines to the addition of less new selling space this year.
Consolidated first-half trading profit was up 3.7% to GBP1.7bn, as sales rose 8.8% to GBP35.5bn. Excluding petrol, sales were up 8.2%. Underlying profit before tax was up 6.2% to GBP1.9bn. Group operating profit increased 12.1% to GBP1.8bn.
UK trading profit was up 4.5% to GBP1.2bn, while sales increased 7.1% over the period.
The retailer admitted that UK like-for-like sales were weak, and were not helped by "subdued market demand in non-food categories, especially electronics and entertainment," which are two of its largest product groups. Over the half, like-for-like sales fell 0.5%, with a reduction of 0.9% in the second quarter.
Commenting on Tesco's results, Hargraves Landsdown's head of equities, Richard Hunter, said Tesco's "multi-pronged approach is helping to deliver a "robust growth model". He said that while the UK performance was "muted" in the period, the US "continues to run at a loss", but profit growth in Europe and Asia offset these drags.
He said the company's pledges to hone its business further combined with its dividend yield make Tesco "strongly placed" compared to its market peers.
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