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Today’s excellent FT piece says that Archie Norman is now the front runner to be the new Chairman of Tesco. On the face of it, he should be the dream appointee. He is outstanding. A combination of strategic intellect and practical nous made him stand out many years back when he became the CFO of Woolworths (the precursor of Kingfisher) on secondment from McKinsey. He went to mastermind the turnaround of Asda and successful sale to Wal-Mart. He has spent his time since in and outside retailing but Archie has all the weight and judgement the Chairman of the UK’s most important private sector employer should have.

Nevertheless, I have some reservations. Archie will have some very clear views around strategy and execution. He will also have formed a clear opinion around  the cultural adjustments that are undoubtedly essential in order to turn Tesco around. Will these all coincide exactly with those Dave Lewis has already formed and started to execute? And when they don’t, whose will prevail? Will Archie be comfortable sitting back letting Dave lead? And to the extent that he does get more involved than any non-retail Chairman could, how will Dave feel about that?

I can’t pretend I know the answers to these questions but I am 100% certain they are fundamental, and the answers will determine whether this will be a successful appointment, assuming it happens anyway. I just cannot see Archie playing an essentially subsidiary leadership role. Without in any way denigrating the promising start Dave Lewis has made, Archie would have made an excellent CEO for Tesco, and therein lies the potential problem.

** For more detailed discussion of Tesco, the grocery market and leadership in retail visit the premium subscription content of richardtalksretail.co.uk

The latest market shares from Kantar have been greeted with some “thank goodness that’s over” type comments. The fact that Tesco registered positive yoy sales growth for the first time for what seems like ages has been taken as a sign that its dark days are over. This is a mistake – Dave Lewis has made a decent start and said some encouraging things, but he is no magician.

Turmoil in the grocery sector has always been about more than simply losing some market share to Aldi and Lidl. I estimate that of the big 4 sales “lost” (that’s spend captured by all the value players that could have accrued to the majors), some 25% has been mopped up by the German discounters. The other 75% has gone into the tills of B&M, Poundland, Home Bargains et al, right under the noses of Tesco, Asda, JS and Morrisons.

It is certainly true that mopping up this business was much easier early on in the game when these players were unaccountably under the radar. However, it is a misreading of the underlying drivers of the switch in consumer behaviour, and an underestimating of just how good these smaller retailers really are, to think it’s all finished. They will capture more sales from the majors because a) they have significant expansion programmes (as opposed to the massively over spaced majors) and b) consumers want to shop in them – they are serving a well-defined need in a way the majors can’t. It is true that they will find further sales growth harder and following Poundland’s acquisition of 99p, there may well be further consolidation. Nevertheless, these retailers have significant growth in their sights and this will heap more pressure on the majors.

Among the many massive issues facing retail right now is one which no one really discusses. The fact that massive overcapacity must impact balance sheets, the large hole which will be created, and the implications. First the cause. While physical capacity in retail has started to decline for the first time in many decades, online capacity has been growing like topsy. And while demand has at headline level been broadly flat, capacity net of closures has been growing steadily. And will continue as far as one can see going forward.

The majority of retailers have far too many stores. And many of the stoes they have are also too big. I have discussed this issue in numerous Papers and forecast the future capacity landscape. It is clear that reports of the imminent death of physical retailing has been exaggerated. However, it is equally clear that overall, demand for space is materially down and that must impact its value. This issue goes right across the industry and touches every sector. Tesco made headlines recently when it announced some store closures. This is just the tip of the iceberg. There will have to be much more, not just from Tesco but from virtually everyone.

And of course the challenge is that with virtually everyone overspaced, the market for excess space becomes rather tricky and its value must therefore be compromised. The answer to this issue is not ignoring it although while everyone is doing exactly that, it is a very seductive option. That elephant is not going to disappear and is getting bigger with time. Watch this (excess) space.

** More detailed discussion and forecasts of excess capacity and the implications is available from the premium subscription access section of retailtalksretail.com

This morning;s announcement that Poundland has agreed terms to acquire 99p makes perfect sense. It was inevitable that there would be some consolidation in the value sector. This is just that, within the single price segment of the wider value sector. These two businesses are very similar but Poundland has pulled away from its rival in several ways during recent years. The two key elements of this are size (Poundland sales are now virtually 3x those of 99p) and performance (Poundland’s has been strengthening while 99p’s has been showing signs of strain over the past couple of years).

The rationale is very simple. Poundland takes out its largest rival and establishes undisputed dominance of the single price sector. It immediately inherits a sales boost of around 33%, with the prospect of driving this up to 50% if it is able to get the additional footage to be as productive as existing Poundland space. If 99p’s sales can indeed be traded in-line with Poundland’s and similarly profits, the potential prize is an incremental £25m. Clearly, there are a number of “ifs” here but in the context of a purchase price of £55m, this is an extremely attractive prize which ticks all the boxes. And given the structural similarities of the two, there is a very good chance these numbers will be achieved. Of course there will be other economies too.

There will certainly be more consolidation in the value sector, just as there will be throughout retailing. Growing overcapacity means everyone has to run that much harder to stand still. And standing still will increasingly be not good enough.

The papers have been focusing on John Allan as the bookies’ favourite to be the next Chairman of Tesco. What is unusual about John is that he has retail experience. He is currently Deputy Chairman of Dixons Carphone and years ago, was part of the leadership team of Fine Fare, the supermarkets business which later became part of Somerfield. I say unusual because history shows that the City has rarely thought sector experience or knowledge is important in non executives. Indeed they have often believed it to be not too important when appointing retail CEOs either.

So reading today that some in the City think John Allen lacks sufficient retail experience is surprising. Does this reflect a sudden realisation that in effectively calling an executive Board to account, the non execs need to bring some external knowledge  of the industry their company trades in?

These are the most challenging retail trading conditions I have ever seen. Many of the givens in this business are not any longer. Tesco itself is a great example of how market dominance and sheer scale are no longer the great advantages they once were. Taking the eye off the ball is punished hugely, irrespective of size. Leadership teams need to be challenged and totally accountable. This cannot be done by people without their own external reference points and who therefore must rely on getting their retail knowledge from the very people they are meant to be supervising. I actually think John Allan brings a very welcome retail knowledge to a Tesco Board with far too little of its own. This may well be a positive step forward.