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Walmart could benefit from Tesco’s exit

With 6,700 stores in 12 markets, Tesco is a formidable competitor globally, but Walmart won’t have to worry about competing with the company on its home turf.

Tesco this week confirmed earlier indications that it would indeed exit the U.S. market following disappointing results from its 199 unit Fresh & Easy concept that was introduced in Western U.S. markets in 2007. The company also indicated it has received interest from third parties for Fresh & Easy assets and would treat the business as a discontinued operation, resulting in a roughly $1.8 billion after tax negative impact on profits.

The $1.8 billion writedown associated with U.S. operations was only half the bad news for Tesco which also took other writedowns related to its operations in the United Kingdom and Eastern Europe that brought the total to negative profit impact to $3.5 billion. The big charge on its home turf where the company competes with Walmart’s Asda division was related to a decision to not develop 100 locations that had been acquired five to 10 years ago.

"All the writedowns relate to strategic decisions that I've taken since being CEO and are logical extensions of those - calling an end of the (UK) space race, deciding to exit the U.S.," according to a Reuters report. "My job's not to look back, my job is only to look forward."

As for what’s next for the Fresh & Easy real estate, Walmart could conceivably be a bidder as it is keen on expanding it smaller format stores and Tesco has already done much of the heavy lifting in markets such as California where Walmart hasn’t exactly been embraced. Tesco indicated it had received a lot of interest from a range of buyers but doesn’t expect to complete the divestiture process for three months.

 

 

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