Wednesday 10 June 2015

Tesco South Korea Sale - an urgent deep-cut to UK resurgence?

                                                                                                    pic: South Korean flag with definitions

With six potential bidders apparently in the frame, it is possible that Tesco could raise £3.9bn from the sale of South Korea Homeplus. Whilst any retreat from a retail market makes a return difficult, recent market indicators reveal that retail sales have been slowing, possibly because South Korea now has nearly one hypermarket per 100,000 people, twice the industry ideal of one per 200,000.

The real issue is the extent to which Tesco is prepared to redefine core as UK, Grocery, Physical and Online.

This means they could cut back everything – all overseas operations, non-grocery categories and any stores that fail to deliver acceptable profit – to rebuild their Balance Sheet around a 25% market share, ROCE 15%,and 5% Net Margins.

A 25% market share would mean they could operate below the radar - farmers, special interest groups, politicians etc. – generate acceptable rewards for risk, create a stable, dominant base in the UK and gradually go global again…

As the Motley Fool says: … if a successful disrupting alternative (like discounters) in a market gains traction its growth can pyramid exponentially…

In other words, Tesco’s unhelpful little discounter issue could become unbeatable tomorrow…

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