Tesco to exit British Home Plus leases

Seven years old – at least eight to go?

Home Plus is Tesco’s non-food branch of stores in retail parks, the first of which opened in 2005. The stores in Telford (near Birmingham) and Staines (next to Heathrow) have already formally been marketed, while the others have also been under review for six months.

Exiting the leases might prove difficult however, as they are for 15 or 20 years. Without new tenants for the Home Plus stores, Tesco might be obliged to keep them open after all.

Lethal change in strategy

Sales were “weak at the out-of-town warehouse-style outlets”, The Times said: a comment that Tesco is very sensitive to, as its share value has plummeted by billions of euros this month. The 13 Home Plus stores might seem like a small needle in the 2,700 British Tesco haystack, but it may well be a painful one.

Dropping the lease is also an important symbolical gesture, as CEO Clarke promised a change in the company’s expansion strategy. He looked forward to moving away from “battleship-sized out-of-town superstores” and concentrating on “improving the quality and range of its offering” and “lowering prices”, even though the last main action – with coupons – was heavily criticised for “not bringing in enough customers”.

Tesco’s like-for-like sales in the Christmas period went down 2.3%, well below its expectations. As a result, share prices are down 20% this year. Moreover, analysts predict that the economic situation will hit non-food retailers significantly harder than food retailers: this may be a very good time, for more than one reason, to dump Home Plus…