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Tesco’s Food to Fashion Formula

For Tesco Stores, following the money means buying for less to sell goods at lower prices. <BR><BR>That’s the mantra that underlies the mission at Tesco, or what John Hoerner, chief executive, clothing and international sourcing, also refers to...

For Tesco Stores, following the money means buying for less to sell goods at lower prices.

That’s the mantra that underlies the mission at Tesco, or what John Hoerner, chief executive, clothing and international sourcing, also refers to as a virtuous price-volume cycle.

“What we do in Tesco is we buy for less. That’s our strategy. We always buy for less and we don’t buy for less so we can keep the money. We buy for less so we can sell for less,” he explained.

Embedded in the business is a plan in which the stores, marketing and logistics team all focus on price and keeping costs low. This allows Tesco to reduce prices, which in turn increases volume. This enables the retailer to continue buying for less. Hoerner’s apparel group is part of Tesco, not a “separate place” within Tesco, he noted.

“We did everything the Tesco way. We sell clothes the same way Tesco sells food. We opened a separate distribution center just for us and we’ve got 325 experienced managers in our stores that actually help us run a clothing department right within Tesco. And we also put a lot more staff in the stores because of the way we run our business. It takes more people to run the clothing business than it does to run Tesco,” Hoerner said.

Ten years ago, the U.K. retailer had sales of 9 billion pounds, or about $16.7 billion. Today, according to Hoerner, the retailer sells in 14 countries with 33.5 billion pounds, or $58.6 billion, in annual volume.

“We’ve invested 14 billion pounds [$26 billion] in buying and extending Tesco’s space and we’ve invested another 2 billion pounds [$3.7 billion] buying existing businesses. Tesco has a very simple core strategy. We have a strong U.K. core to our business, which we keep. We want to be as strong in nonfood as we are in food,” he told the audience.

Its core operations remain in the U.K., where it has 1,900 stores, 97 big hypermarkets, 431 superstores, 161 metro stores and 381 express convenient stores. On the international front, Tesco is now in several European countries: Hungary, Poland, Slovakia, the Czech Republic, Ireland and Turkey. It also has a presence in Asia in Thailand, South Korea, Taiwan, China and Japan.

This story first appeared in the November 17, 2004 issue of WWD.  Subscribe Today.

As for apparel in the U.K., it sells to about 23.1 million adult men, representing 9.1 billion pounds, or $15.9 billion, in sales. Adult women, or 24.8 million, account for 19.2 billion pounds, or $35.6 billion, in sales. Young adults, those under 16 years of age, represent a population of 11.7 million and 4.5 billion pounds, or $7.9 billion.

“There’s a great myth to the fact that large retailers just go around beating up suppliers. Absolutely not true. We actually need our suppliers very, very badly for them to be able to sell the quantity and the value that we provide in our business, [so] we value our suppliers,” Hoerner said.

In the apparel business, there are about 200 new lines per season per buying team, with the concepts determined a year ahead of time in order to figure out what to sell, get bids for the manufacture of goods, getting product to the distribution centers and then into the stores.

The company, while it has had substantial foot traffic generated from extensive fashion press coverage in the U.K. over its “Kylie Dress,” — a fast-turn knockoff of a Chloé look —also ensures margin support from both a low labor cost structure and investments in technology to boost production cost savings.

Hoerner, using the blending of cotton as an example, boasted of how the retailer utilizes the latest technology to blend cotton “like whiskey” to maintain a uniformity in quality.

“Top-quality cotton is spun faster than low-quality,” he pointed out. Because stock turns very fast, the retailer needs to make sure it gets the merchandise on time. Suppliers help Tesco do just that, in addition to helping to provide quality and innovation to the product.

The low prices speak for themselves at Tesco. A Tesco pair of jeans manufactured in Bangladesh can be bought for 4 pounds, which at Tesco includes the value-added tax. In comparison, a pair at Next would cost 21.99 pounds, or $40.84, while one at Marks & Spencer would be 19 pounds, or $35.29. A Cherokee-branded pair would cost 12 pounds, or $22.29.