Tesco sells off some digital assets as it restructures
January 19, 2015 01:51 PM
It’s been over a week since Tesco Stores announced plans to cut costs by as much as $380 million (250 million pounds) over the next year even as its e-commerce channel continues to grow at a healthy clip.
Now, Tesco, No. 3 in the Internet Retailer 2014 Europe 500 (more on the Europe 500) and one of the biggest mass merchants in the United Kingdom, is releasing more detail on its restructuring moves, which include selling off some e-commerce assets.
Tesco announced plans last week to close as many as 43 stores, consolidate some headquarters real estate and close or spin off some business units. In the update on earnings, which covered the 19 weeks ended Jan. 3, Tesco didn’t provide actual sales, but did include lots of metrics on how its business was performing. The lone bright spot was e-commerce, which for a six-week period ending Dec. 25 included increases in online grocery shopping (12.9%), mass merchandise web sales (22.2%) and apparel and accessories web sales (52.4%). Tesco didn’t release an overall e-commerce growth rate and it didn’t break out sales or e-commerce metrics for the 19 weeks.
But the company did make clear it plans to cut costs to combat a drop in comparable-store sales, which Tesco calls like for like sales, of 2.7% for the 19 weeks and about 1% for the holidays. In the U.K. comparable-store sales declined by 2.9% and 0.3%, respectively. “We have some very difficult changes to make,” CEO David Lewis told analysts.
To cut costs, Tesco will close stores in the U.K. and consolidate its Cheshunt office complex in suburban London into another complex in Welwyn Garden City, about 25 miles north of London. Tesco will eliminate some jobs, but did not say how many.
The restructuring includes selling off some e-commerce and Internet assets. They include Blinkbox, a digital entertainment and streaming service Tesco acquired in 2011 for an undisclosed sum, and Tesco Broadband, an Internet broadband subscription service launched in 2009. Both Blinkbox and Tesco Broadband were sold to TalkTalk Group, a U.K. provider of pay television, telecommunications, Internet access and mobile network services to businesses and consumers. Tesco did not disclose the sale price.
Tesco acquired Blinkbox and launched Tesco Broadband to compete in the U.K. digital entertainment world with companies such as Amazon.com, which in 2011 acquired British TV and movie streaming company LoveFilm International. But now Tesco, which generated global e-commerce sales of nearly $5 billion (3 billion pounds in 2013), is selling off Internet assets to concentrate more on its core business, Lewis told analysts. “We announced today that we completed the sale of Blinkbox Movies and Tesco Broadband to TalkTalk and we’ve invested, it's fair to say, a lot of money,” Lewis said. “But it's a business that still needs a lot of money.”
Tesco also has retained Goldman Sachs to explore strategic options including the possible sale of Dunnhumby, a retail data analytics company. Tesco acquired Dunnhumby in 2011. Dunnhumby analyzes data from a database of more than 750 million shoppers worldwide. Tesco says. “They also are a business that needs to have investment and the next wave of data, and there are a number of very interested parties who would want to be involved in Dunnhumby,” Lewis says. “We've taken Goldman on to look with us about what all those options could be and what we are saying is we are open to any and all possibilities there.”
Tesco is a global retailer with stores and an e-commerce base in Asia and Europe. But as the company restructures, its main focus is becoming a leaner retailer in the U.K. offering low prices, the company says. Tesco also will continue to build up its core e-commerce base and is pleased with its performance online while store sales have lagged. “We’ve seen very strong growth in all of the online businesses,” Lewis says.