Tesco reports online sales surge, advances digital platform

Retail giant Tesco has reported major growth in its e-commerce business in its full-year results, along with details on progress of its multi-year IT remediation process.

The company’s UK online sales for 2020 reached £6.3bn, a 77% increase on the previous year. In response to the emergence of Covid-19, the firm brought its capacity to 1.5 million slots a week over a five-week period.

“We have doubled the size of our online business and through Clubcard, we’re building a digital customer platform,” said Tesco chief executive Ken Murphy. The company says its online business remains the “clear market leader”.

Online sales participation doubled to 15% for the full year, reaching a peak of 18% during the fourth quarter of 2020, according to Tesco. Home deliveries accounted for 79% of online orders, with click & collect participation increasing from 11% at the start of 2020 to 25% by the end of the year.

The retailer’s e-commerce business was boosted by the launch of an urban fulfilment centre (UFC) in West Bromwich Extra. According to Tesco, this enables the company to provide more delivery slots for customers with an increased rate of picking, therefore boosting efficiency in fulfilment of ongoing online demand. A second UFC site in Lakeside Extra will open in May 2020 and four other sites will open in the next 12 months.

According to Tesco, the uptake of Clubcard, which has more than two million active app users, was driven by the launch of Clubcard exclusive deals in September, which now gather more than 3,000 offers. Tesco said the number of customers using Clubcard via the app has doubled to more than five million and Clubcard sales penetration has increased by more than 10 percentage points to about 80%.

Tesco’s capital expenditure in 2020 was £1.015bn, £88m higher year-on-year. The increase was mainly due to higher maintenance spend in UK stores and technology, including the company’s investment in boosting its online capacity.

Ongoing technology-related weaknesses are also outlined in Tesco’s report, and are included in the key audit matters identified in the current year.

Risks were identified in areas such as IT security and the retail technology environment, with Tesco citing “deficiencies in certain IT controls”. These technology shortcomings, which the company has reported since 2015, are understood to present risks of an adverse impact on the group’s controls and financial reporting systems.

To tackle these deficiencies, Tesco said it is leading a process of IT remediation and had gained a more thorough understanding of the issues in 2020. Its multi-year effort has involved actions such as assessing the appropriateness of remediated access controls across in-scope applications and their supporting infrastructure, as well as defining whether the remediated controls address the identified shortcomings.

According to the retailer, although its management’s remediation strategy is designed to address the concerns around Tesco’s IT, the plan is not yet complete, due to the complexity of the underlying systems – so the weaknesses remain in the control environment, although progress is being monitored.