Tesco closes two distribution centres

11-Jan-2017 - Last updated on 11-Jan-2017 at 12:06 GMT

Tesco is closing two of its distribution centres with the net loss of 500 jobs

Related tags Supply chain management Tesco

Tesco is to close two of its distribution centres, with the net loss of around 500 jobs, in a move designed to simplify its supply chain operations and management structure across all distribution operations and meet changing consumer demand.

The changes will reduce the number of Tesco distribution centres from 25 to 23 in the UK and will include closing its Welham Green distribution centre and moving its grocery operations to the Reading distribution centre.

At the same time, Britain’s biggest retailer will bring the majority of its general merchandising into one distribution centre at Middlesbrough, resulting in the closure of the Chesterfield distribution centre.

It is withdrawing from the Daventry ‘hanging garments’ shared distribution centre, which is currently operated by third-party logistics provider DHL. Its clothing operations will move to nearby Tesco Daventry distribution centre. Tesco also plans to bring all warehouse operations that are currently carried out by DHL and Wincanton in house.

500 net job losses

While these changes are expected to result in more than 1,000 job losses, around 500 new roles are reportedly to be created within other sites across the Tesco distribution network. This includes new jobs at Reading and Middlesbrough distribution centres as well as the creation of support roles in the majority of its centres.

“As the needs of our customers change, it’s vital we transform our business for the future,” said Tesco UK and Ireland ceo Matt Davies. “As part of this we are proposing to close two of our distribution centres in the UK. These changes will help to simplify our distribution operations so we can continue to serve our customers better.”

Tesco is due to update the market on its third-quarter results for the 2017 financial year (FY2017), including the all-important Christmas trading period, on Thursday January 12.

City analyst Clive Black at Shore Capital predicted ex-fuel, ex-VAT like-for-like (LFL) sales growth for Tesco UK within a range of 1.25–1.75%. Black expected the restructuring of Tesco’s distribution operations to have a positive impact on the retailer’s financial performance.

‘Lower operating charges’

“We would expect them to lead to lower operating charges that can either be re-invested into the retail proposition and/or bolster recovering core chain trading margins,” said Black.

“Tesco set out at its FY2017 interim results an aspiration to deliver a UK trading margin of c3.5–4.0% in the medium-term; guidance that fell within Shore Capital’s prevailing expectation of 3.7%, which we have not subsequently adjusted.”

Shore Capital retained a ‘hold’ recommendation on Tesco stock. The analyst acts as a broker for Morrisons, which is also releasing its Christmas trading figures today (January 10).