The retailer claimed in its results announcement that the growth of its online ordering business grew by almost 20% in the past year.
But the Tesco reported the biggest loss in its history, in part due to struggling stores and dwindling footfall as German discount stores enter the market.
“The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years.” Dave Lewis, Tesco’s chief executive, said.
“The market is still challenging and we are not expecting any let-up in the months ahead. When you add to this the fundamental changes we are making to our business and our offer, it is likely to lead to an increased level of volatility in short-term performance.”
Customers' visits to its larger retail stores has dropped and Tesco has been forced to change its brick-and-mortar plans by closing 43 stores that weren’t profitable and putting on hold plans to develop 49 more sites.
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Online contributes little to profitability
But although online does not contribute substantial amounts, and Tesco’s previous claims that its shift to online was damaging profits, retailers still use online to boost sales, said Quocirca analyst Bob Tarzey.
“Overall online is pretty small, but growing fastest. Online may make a loss, but is seen as table-stakes for any retailer these days.” Tarzey said.
These tactics do not always make retailers money, and analyst for IDC Miya Knights said these losses are part of a more fundamental problem with Tesco’s business.
“Operational challenges of running its online business profitably are basically the same as it faces in its stores. Perhaps these have been further exposed by changing market dynamics, to online and convenience buying, and away from retail parks and megastores – hence the speculation over more store closures,” said Knights.
“Tesco has to reset its relationships with suppliers, find a way to compete profitably with the discounters and, most importantly, win back more customers.”
In 2014 Tesco announced it would cut its IT budget and, in a further attempt to reduce overheads, sold off its broadband service and loss-making Blinkbox company to TalkTalk.
Tesco has attempted to refocus on its customers by increasing the staff in its remaining stores, improving customer service and reducing prices, leading to a slow increase in sales.
“Our clear priority – and the one that will deliver sustainable value for our shareholders – is to improve consistently for customers.” said Lewis.
“The changes we have made and will continue to make put us in a stronger position to do this.”