Fears more retailers will follow Tesco refurb cuts

Last week, Tesco cut £400m from its capital spending budget as the retail giant issued another profit warning, attributed to “challenging trading conditions”.

In a statement to the City, the retail giant said it would cut its capital spending programme by £400m to £2.1bn in this financial year.

It said: “This will be achieved in a number of areas including IT and the slower roll-out of our store refresh programme.”

The announcement came as the firm said that it had cut its profit forecast for this financial year from £2.8bn to between £2.4bn and £2.5bn.

It said “challenging trading conditions” and Tesco’s “ongoing investment in our customer offer” had been the cause of the profit warning.

Richard Broadbent, chair of Tesco, said the decision to cut capital spending had “not been taken lightly” and was a step to “enable Tesco to retain a strong financial position” and strategic options.

However, Tesco added that incoming chief executive Dave Lewis, who joined the retailer from consumer goods giant Unilever on 1 September, would be “reviewing all aspects of the group”.

David Gray, retail analyst at Planet Retail, said that he expected to see further capital spending cuts from the big retailers.

“The middle ground [of the retail market] is being squeezed and they don’t want to cut their margins so they have to cut their capital expenditure,” he said.

He added he was “surprised” Tesco was cutting store refurbishment because he said he had seen figures that showed the chain’s refurbished stores experienced a 3-5% uplift in sales, which he said was “quite good”.

Paul Zuccherelli, partner at Alinea Consulting, said he expected further capital spending cuts from the retail giants. He said: “I don’t think we have reached the bottom yet.”

“The one that might buck that trend is Morrisons. They are one of the few winners and they are laying down space in small stores,” he said.