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Tesco may be going too far with its drastic staff cuts


IN BRITAIN'S retail apocalypse, culling staff might seem like an obvious course of action for hard-pressed store chains.

But cut too deep, and the damage inflicted on the business can be even more devastating than Brexit-induced nervousness.

Tesco is looking to eliminate up to 9,000 jobs - about half of which could be shifted elsewhere in the company - as part of a broader restructuring. This will include changing its fresh-food offering by closing meat, fish and delicatessen counters in 90 locations.

Tesco said a shift in shopping habits meant customers were using these services less. But chief executive officer Dave Lewis is approaching crunch time for meeting his target of a group operating margin of between 3.5 per cent and 4 per cent by February 2020. He needs to be careful he doesn't repeat the mistakes of his predecessors - and his rivals should be wary of moving too quickly to match his move.

Analysts at HSBC estimate that he will make it - just about - scraping in at 3.6 per cent in 2020. That doesn't leave much wiggle room, particularly as the UK arms of the German discounters, Aldi and Lidl, continue to gobble up what growth there is in the food retail market.

So Mr Lewis, dubbed "Drastic Dave" for cost-cutting during his time at Unilever Plc, is still looking for operational savings. He is aiming to curb spending by 1.5 billion pounds (S$2.67 billion) by February 2020.

It's easy to see why fresh food counters might be in the firing line, as they have high staff costs. But such a move could be detrimental to the overall customer experience. Older people might want to buy two slices of ham rather than a family-sized packet, and enjoy the interaction too.

And such counters differentiate big stores from all others. Without these services, there is little to mark them out from smaller supermarkets and the German discounters. Indeed, Lidl has started offering fresh bread, with great success. BLOOMBERG