EDITORIAL Tesco Direct closure more canny than catastrophe?

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Retail is a dangerous place right now: who’d have thought that M&S and Tesco would join the list of troubled retailers out there? But they have and in style.

The problem is to my mind two-fold. Firstly, there is a wealth of competition from ‘new entrants’ such as Amazon, competition from discounters and competition amongst ‘traditional’ players.

Secondly, shopper habits have changed radically – not least because of the above – but also because of technology and many of the failed and troubled ‘traditional’ retailers are simply failing to change with them.

The change in shopper habits has been rapid and no large corporate can ever really hope to be able to change at the same pace. However, many have missed the mark of just how changed their consumers are and have, largely, carried on with business as usual, sprinkling the odd bit of technology – and app here, some in-store wifi trials there, click and collect everywhere – and hoped for the best.

Well, that gamble has not paid off and here we are.

The most interesting of these shifts has to be last week’s retrenchment by Tesco to close its Amazon-lite Tesco Direct site, fold some of the homewares and other goods into Tesco.com and give up on selling third party goods.

Like Halfords before it, the plan to run its own marketplace to take on Amazon, eBay and even Argos has not paid off. In fact, Tesco cites the economics of fulfilment as one of the key reasons why Tesco Direct – which cost the retail some £25million to set up – never made any money.

But the problem goes deeper than just costs and competition. Tesco has clearly seen the writing on the wall for the grocery sector and is retrenching for a reason: it’s getting ready for a fist fight.

While Amazon is beating it hands down in the marketplace game – as you would expect: faster and better website, better fulfilment, wider choice et al – its vulture like presence over an entrance to the grocery sector is going to give all established grocers a run for their money.

Couple this with the news of the proposed Sainsbury’s-Asda merger and Tesco is suddenly in a very vulnerable position in its core market, grocery.

The move to bring everything under one website – tesco.com – and ditch the money-draining Direct business makes a lot more sense if the retailer is planning to do battle with Amazon adding groceries and ‘Sainsda’, which also includes Argos, adding huge buying power and third-party non-grocery goods.

There is also the spectre of Amazon buying its way into the UK grocery market, with Morrisons’ tipped as one target, but having had some quiet talk with some retail experts over a few drinks, the idea that Amazon may pounce on the merged ‘Sainsda’ once the deal is done and the integration underway to take it right to the top. It has the money and it would just take it straight to the top of the highly competitive UK grocery market.

Or perhaps Tesco knows something we don’t: maybe it has divested itself of its marketplace so it can, dare I say it, partner in some way with Amazon?

With all this piling up it seems that, rather than Tesco Direct ‘failing’, the real reason(s) behind the closure aren’t so much to do with trying to operate a third-party marketplace, but more to do with being ready to take on a changing retail landscape before it happens.

And this in itself marks Tesco out as a canny operator. All other UK retailers have been caught with their pants down over the changing retail landscape. Tesco it seems may be trying to restructure ahead of the next round of changes.

4 Responses

  1. nice analysis there.

    personally any time i used Tesco direct, it got the sense it didn’t fit.
    it probably would have performed better if it didn’t have the Tesco name on it, people go there expecting Tesco, and find it’s a rather different thing. The initial uplift they get from brand recognition is lost when customers don’t recognise the brand they went there for.

    for example, the last time i was looking for a PS4 game. it’s not in stock from central distribution, but possibly could be in any one of my 50+ local stores i’d be willing to travel to. no way for me to tell if it’s already in store, the only option is to back order click & collect, for delivery 2 days after it reaches central distribution, whenever that is. or i could phone each store individually.
    I’m still having to go to a store, the store may already have it in stock now, but Tesco Direct won’t tell me if Tesco have stock.

    Tesco “proper” has a different website, which is actually related to the shop down the road. the shop down the road might have the item i want there, but they still won’t tell me because that falls under Tesco Direct’s remit.

    i could accept this division if it were two separate entities i were dealing with, but such counter-productive demarcation between the same entity really grates me the wrong way. and many other people i’d imagine.

    Argos don’t care if you’re online or in store, if you want delivery or collection or pickup today. they’ll tell you how and where you can buy their products, not treat each department as if they’re separate companies merely co-operating with one another.


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