Leadership Transition at Tesco - The Challenges in Store for Dave Lewis

In July 2014, Tesco Plc (Tesco), the largest retailer in the UK, announced a change in leadership. Dave Lewis (Lewis), head of personal care at Anglo-Dutch FMCG conglomerate Unilever plc. (Unilever), was appointed as the CEO in place of Philip Clarke (Clarke). Since its inception in 1919, Tesco had always had insiders at the helm. Lewis was the first outsider to lead it.

Leaders like Ian McLaurin and Terry Leahy (Leahy) played a major role in transforming Tesco from the third largest retailer in the UK to the third largest retailer in the world. The initiatives started by McLaurin like revamping the stores, opening large stores, and introducing customer centric programs, were taken forward by his successor Terry Leahy, who became the CEO in 1997.

Keywords: Tesco, UK, retail, recession, hard discounters, Philip Clarke, leadership challenges, Management style, recession, leadership styles, change, business environment, leadership transition, retail in the UK

Introduction

On July 21, 2014, the management of Tesco Plc. (Tesco), the largest retailer in the UK, suddenly announced that it was replacing its CEO, Philip Clarke (Clarke), with Dave Lewis (Lewis), head of personal care at Anglo-Dutch FMCG conglomerate, Unilever plc (Unilever). Lewis would be the first outsider to head Tesco. For Clarke, who had succeeded Terry Leahy (Leahy) in 2011, the news was definitely not unexpected, given the decreasing sales figures. However, it put paid to what would have been his 40th anniversary celebrations at Tesco.

Leahy's 14-year tenure at Tesco had changed the way business was done at the company. Tesco had become the world's third largest retailer with 400,000 employees, nearly 5000 outlets worldwide, and a £63 billion turnover in the year 2010. The sudden announcement of Leahy's retirement in 2011 came as a shock to both employees and industry experts. According to Leahy, he had done his job at Tesco and had made a significant improvement from the time he had been appointed CEO and he felt it was the right time to leave.

Critics questioned the timing of the retirement as the company was going through a tough time through the recession period after the 2008 financial crisis and the losses the company had incurred at its US venture, Fresh and Easy Stores. Philip Clarke was appointed the next CEO.

Clarke had been looking after the international business since 2004 and had played a pivotal role in the success of the company in countries like China and South Korea, where Tesco had made huge profits. As Clarke had spent more than three decades in Tesco, analysts and industry experts gave him the thumbs up and expected him to carry forward Leahy's legacy.

Tesco, a multinational grocery and general merchandise retailer, was established in the year 1919 by Jack Cohen (Cohen). In the initial days, Cohen sold groceries from a stall within the East End market of Brixton, London. Tesco as a company got its name when Cohen bought a shipment of tea from T.E. Stockwell. The initial letters of the names of Cohen and T.E. Stockwell formed the name TESCO, which opened its first store in Burn Oak, North London.

The company gained momentum in the 1930s in spite of a depression worldwide. Cohen built a warehouse at headquarters to minimize transportation costs and, by 1932, Tesco became a Private Limited Company (PLC). Over the next eight years, the company grew rapidly and Cohen opened more than 100 small stores mainly in the London area. In 1947, Tesco Stores (Holdings) Limited listed with a share price of 25 pence. Over the next two decades, the company expanded quickly across the country.

an MacLaurin (MacLaurin), who became managing director in 1973, took up the responsibility of generating profits for the company in tough times. By 1976, Tesco was operating nearly 900 superstores and supermarkets which were run on the principle of ‘pile it high, sell it cheap' - a concept borrowed from the US. Though this strategy helped it to attract a large number of customers, it also served to brand it as a store for middle class customers and gave it a low-end image.

Tesco Under Leahy

In the first decade of the 21st century, Leahy played a pivotal role in establishing Tesco as a major international retail company. He designed an ambitious growth strategy that directed the company's expansion efforts in its core UK business, retailing services, international operations, and non-food business. Developing the non food business was a challenge for Leahy as nothing significant had been achieved earlier in this segment.

Slowly, he took Tesco into other businesses like electronics, toys, sports equipment, cookware, and home furnishings. Expanding the international agenda of the company Leahy established superstores in Thailand in 1998, South Korea in 1999, Taiwan in 2000, Malaysia in 2002, China in 2004, and the United States in 2007. One of the significant steps in the expansion of the company was the acquisition of the convenience store chain T&S Stores plc, which owned 870 stores.

Philip Clark At The Helm

Despite the huge success Leahy achieved at Tesco, he opted for voluntary retirement in March 2011. According to him, he was leaving the business in a much better condition than it had been when he took over in 1997. He made Tesco the only major international retail giant from the United Kingdom and decided in 2011 that it was time for him to leave. However, critics questioned the timing of the resignation as Tesco was not doing well in its US business.

The Plunge Continues

For the year ending February 26, 2011, same store sales remained flat after dropping 0.7% during the last quarter. The trend continued and during the next quarter ending May 28, 2011, they were down 0.1%. Like-for-like sales in the UK had fallen by 0.9% in the three months ending August 27, 2011. This was the company's worst performance in 20 years . (Refer to Table I Tesco's Like-for-like sales)......

Challenges For Dave Lewis

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Questions

1) Examine the role of leadership in the organization - Transactional Vs Transformational

2) Explore the managerial challenges that accompany rapid expansion and growth

3) Building the Adaptive Firm.

4) Understand the leadership strategies of a market leader