This year may not be the best year for Tesco after the supermarket chain lost 50% of its market value. Earlier this year, Tesco announced that it has misstated its profits by around £263 million. The announcement resulted in a 16% decrease in shares though it has recovered slightly after.
The company’s chief executive, Dave Lewis, said that the changes in the dealing with the suppliers and the 6,000 newly hired staff were the source of the company’s shortfall in the profit computation. He also hinted that they chose to improve the relations between customers and suppliers rather than taking measures that would have given the company profits but only for a short-term. After admitting that Tesco’s relationship with its suppliers is not very smooth, they decided to retrain all their employees who are dealing with the suppliers in all levels. While these measures are costing them, these are important for maintaining the business in a healthy level. Some analysts voiced out that these measures could take years to fulfil.
According to BBC, Tesco has released that its group trading profit for the whole year will not exceed the £1.4 billion which does not quite meet the market’s expected range of £1.8 billion to £2.2 billion.
One of the reasons for Tesco’s decline is that customers are not that eager to shop there because it has lost its core – a store with best prices and great quality – leaving the customers with no choice but to patronize the competitors.
Currently, the Serious Fraud Office is carrying out a criminal investigation regarding the irregularities in Tesco’s accounting. Tesco is suspected of booking profits earlier from deals with suppliers while the costs related to the deal was delayed.
The incident was revealed last September and immediately caused a decline in Tesco’s shares. Billions was wiped off the value of the company which is considered to be Britain’s largest supermarket chain.
While the investigation into the accounting irregularities is ongoing, eight (8) executives of Tesco are under suspension but four (4) of the said executives chose to leave the company.
One important question is whether there are other cases of major accounting problems before this one. The real challenge is, how is Telco going to lure its customers back in?