Thursday, 8 January 2015
Tesco: Lower profits? Shaft your workers!
Andrew Fisher finds that when it comes to falling profits, every little attack on workers helps ...
Tesco is in the news again today as it reports its sales figures for the most recent Christmas period. In common with other major retailers - including Sainsbury's earlier this week - it has, as expected, reported a slight dip in sales.
Tesco and the other big three retailers (Sainsbury's, Asda and Morrisons) are very much the 'squeezed middle' of retail - squeezed both by the rise of discount retailers like Lidl and Aldi, and by the fall in real incomes that UK households are experiencing. Tesco sales over Christmas were down 0.3% compared with the previous year (though up 0.1% if fuel sales included). However, comparable sales for the three months to the beginning of January were down by 2.9%.
But still profitable
It's hardly news that Tesco has been rocked by scandal due to some dodgy financial statements. According to the BBC it overstated its half-year profits by £250 million, "almost a quarter of its expected profit for the period". So while it was expected to make £1 billion it actually only made a profit of £750 million - or just over £4 million a day, every day.
However, with sales higher in the second half of the year, Tesco still forecast full year profits of £2.4 billion (down from an earlier estimate of £2.8 billion). So Tesco makes a profit of roughly £6.5 million a day.
In other words, despite the misleading statements, mismanagement and recent slight dip in sales volumes and profit levels, Tesco remains a highly profitable company.
Cuts, cuts, cuts!
Shoppers can expect a bit of a supermarket price war as the big four try to recover the ground that they are losing to the discount retailers.
However, Tesco has also announced that it will close 43 'unprofitable' stores across the UK - 1.3% of its total stores, and mostly Tesco Locals - which will create more 'food deserts' in the poorest parts of UK. It will also mean the loss of several hundred jobs. The job cuts won't only be from closed stores though - Tesco says it wants to reduce its overheads by 30% and cut another £250 million (the exact amount by which it overstated its profits)
But workers who survive the jobs cull are not immune as Tesco has announced that it will close its staff pension scheme - a defined benefit scheme. Presumably Tesco will not introduce a new scheme, simply meet its statutory obligation to provide a workplace pension (defined contribution).
The Guardian notes these cuts announcements have been well received in the City, sending Tesco shares up 7% to 195p. The gods are appeased: workers have been sacrificed for higher profits and dividends.