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Tesco and Sainsbury's continue to pull back on new build

Tesco and Sainsbury’s are continuing their space reduction programmes in the UK as they focus on refurbishment and smaller stores.

Tesco reported its first profit fall in 20 years for the half-year today, and said its programme to reduce new UK space was on track, with a greater focus on smaller Express units.

It confirmed a 40 per cent reduction in full-year new space growth and said it expects full-year capital expenditure to be around £3.2 billion, down from £3.8bn last year.

Meanwhile, Sainsbury’s posted a trading update this morning saying total sales for the second quarter were up 4.3 per cent.

It has continued its focus on convenience stores, opening 49 in the half-year, and delivering a target of one to two per week.

It said: “Over the quarter we grew space in line with our plans, opening five supermarkets, 28 convenience stores and two extensions, adding 267,000 sq ft to our estate.

“This brings the year-to-date total to 330,000 sq ft.”

Tesco said its lower spending “is mainly due to our reduced new space programme in the UK, which will result in an overall reduction in UK capital expenditure, even though we are stepping up our investment in existing stores and online.”

The firm’s £1bn recovery plan to stem market share loss has impacted profits. Tesco said it is focusing on improving existing stores and building its online presence and its “grocery click & collect drive-through”.

Over 230 of its stores have undergone varying degrees of refresh work in the first half, ranging from signage and colour-scheme changes to comprehensive refits.

Tesco opened 60 Express stores, bringing the total number to nearly 1,500. New space for the year is expected to be just less than 1.5m sq ft, of which nearly a quarter will be Express.

Chief executive Phil Clarke said: “We have made some important strategic changes which have fundamentally altered our approach to capital allocation. 

“First, significantly reducing space growth in the UK and focusing on improving the performance of our existing stores.

“Second, investing in online to enable Tesco to take a leadership role in the digital revolution: playing our part in shaping the future of retailing.”

Tesco reported a 1.6 per cent rise in group sales to £36bn in the half year to 25 August 2012, with profit before tax down 11.6 per cent to £1.7bn.


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