Tesco Offers Segmented Retail Model for the Future

ELLIOT ZWIEBACH

BURLINGAME, Calif. — British supermarket operator Tesco, with its highly segmented format flexibility, may provide the retail model for the future, Al Meyers, senior vice president, TNS Retail Forward, said in a presentation here.

“Tesco is the harbinger of the future that incorporates all the retailing trends we see becoming important in the future, and it executes them well today,” he said.

Meyers spoke at “Retail 2015: New Frontiers,” a daylong seminar in which executives of Columbus, Ohio-based Retail Forward discussed anticipated industry trends over the next eight years.

“Segmentation is a religion at Tesco,” Meyers said, with 50,000-square-foot superstores, 15,000-square-foot Metro stores for smaller towns and 3,000-square-foot Express stores; multichannel offerings, including the Tesco Direct online service and in-store kiosks featuring 7,000 general merchandise products; “and a provincial curb-to-casket strategy that includes service offerings in real estate, bill payments, optical, legal, and travel and leisure.

“Tesco is able to identify pockets of opportunity to create brands, products and services from low-end values to gourmet quality, and it's doing it on a global basis, with more than half its space outside the United Kingdom,” and its imminent arrival in the U.S. with its Fresh & Easy Neighborhood Market later this year, Meyers said.

That multichannel approach sets a standard for retailers in all industries to emulate to accommodate the changing needs of the consuming public, he pointed out.

“To increase comparable-store sales, retailers will have to segment and localize their operations, using all the sophisticated shopper insights and supply chain information available to customize merchandising, advertising and marketing,” he explained.

“By 2015, the cookie-cutter store will be gone, and in its place will be stores customized to each location, down to core frequent-shopper preferences.”

Those customized stores will be smaller in size and in total numbers, he added. “Rather than operating hundreds of stores, a chain could operate a niche concept with about 100 stores,” he said.

“The business is not getting smaller, but small stores will get bigger to meet varied demand,” he added, citing Giant Eagle Express — “a new breed of convenience stores,” he noted — and Tesco's Fresh & Easy.

Meyers said many changes will be generated by retailers seeking to reverse slowing growth trends.

While retail sales in general grew at an annual compound rate of 5.5% over the past five years, they are expected to grow only 4.8% this year, 5% in 2008, 5.2% in 2009, 5.3% in 2010 and 5.4% in 2011, “though the average may mask some of the fallout,” Meyers pointed out.

“At the same time, major formats will approach saturation and some of today's hot formats, like supercenters, will experience slower growth rates. As a result, many channels will require innovative new formats to generate growth.”

The retail industry could also see more “pop-up retailing,” including seasonal in-and-out sections like the H&R Block tax preparation fixtures that were set up at some Wal-Mart stores this year, Meyers said, or more permanent sections “that fit specific lifestyle needs,” such as Kroger Co.'s personal finance centers that offer mortgage and home equity loans, pet insurance, identity theft insurance and gift cards, he added.