Tesco UK chief quits: analyst reaction

Andrew Kasoulis at Credit Suisse The move is not a complete surprise as the press has been reporting tensions between Brasher/Clarke for some time – the FT, for example, had been suggesting that Brasher had wanted to push deeper with price cuts and the two disagreed on strategy. We think it is probably simpler than that – Clarke wanting very close day-to-day control of the UK and Brasher maybe not happy/prepared for two captains to run the same ship. Also, Clarke has recently moved key trusted executives from his prior international role into UK jobs – Chris Bush (ex-Thailand) now heads UK retail and Ken Towle (ex-China) heads UK online – so he has very much moulded the UK team … Given better sales recently (as reported by Kantar/Nielsen), we think Brasher's departure is more a result of the two personalities than as a result of deteriorating numbers. Shore Capital Tesco's misjudgments have been clearly spoken about by Philip Clarke, with comments that relate to an over-focus on store costs and stock management over customer service amongst other things. Accordingly, a central, indeed the central component of the announcement from the company on 12 January that amounted to a profit warning for the 2012-13 financial year, was the need to reinvest in labour and proposition to improvement competitiveness of the core chain at a cost to UK margins. The departure of Mr Brasher, who it must be said has had a glowing career at Tesco, follows that of David Potts and Andrew Higginson from the Tesco main board in recent times, reflecting the generational adjustment taking place following the surprise retirement of Sir Terry Leahy, announced in March 2010. That change of generation in any company brings with it the dangers of inertia and disruptive adjustment that is naturally to be expected to some extent until the 'new' settles in. At the same time and reflecting the changing shape of the business, Mr Clarke is building a new group-wide management structure that probably reflects more effectively the nature and extent of Tesco today and where it wants to go as the world's third largest retailer. Quite how that new management structure works and performs is yet to be measured, but we certainly cannot fault Mr Clarke for demonstrating decisiveness and energy. Analysts at JP Morgan Cazenove The UK remains Tesco's biggest challenge and Mr Clarke's more direct involvement should reassure shareholders that his focus remains on this key challenge. Given Mr Clarke's direct involvement, Mr Brasher's role in the business became less clear and as a consequence he has taken the decision to leave the business in July. The change should herald a new wave of generational managers with the very well regarded Mr Bush, recently appointed COO of UK stores, now in pole position for further ascension. We do not consider this likely to be a permanent arrangement given the obvious concerns of Mr Clarke becoming too stretched but with the US now showing progress and the bank seemingly progressing towards the launch of new products, Mr Clarke has more time to address the UK's problems right now. Panmure Having a group CEO and a CEO of the UK is all very well when things are going swimmingly. However, with the UK, 70% of the business and underperforming, it becomes difficult to have two captains on the bridge. Therefore, the departure of Richard Brasher is a sad, but perhaps inevitable, consequence of the recent profit warning … That is the official version and we believe it, for once.