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Tesco Turns Developer In An Attempt To Boost Revenue And Defeat The Housing Crisis

Would British supermarket chain’s unique strategy of creating shopping “villages” work in the U.S?

By Jeff Vasishta November 22, 2016
Tooykrub / Shutterstock.com

British supermarket chain Tesco, the equivalent of Walmart in the US, is adopting a unique strategy to fight debt and a drop in sales. It’s building houses. Specifically, as reported in the Daily Telegraph, it’s turning its largest urban supermarkets into mini-Tesco villages containing hundreds of homes. What does that mean? Building modular housing in factories, which Tesco will then place on top of its giant superstores. As a result, the space in its sprawling car parks—which often go unused in off hours—will get be utilized to build additional housing. Ambitious, yes, but would the same thing work in the US?

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The idea is that everyone who lives in a Tesco village and has their own private parking area will use the store—as will those who don’t. This idea could be a boon for the British housing industry—which is in dire need of areas to build property. Perhaps, it could help dig the supermarket chain out of deep hole. If it works, Walmart and other large scale retailers may also think of similar out-of-the box strategies to boost flagging sales. Competition from Amazon and discount supermarket chains like Aldi have cut into the larger superstore profits, with their high expenses. It’s doubtful, though, that trading its large footprint for housing space would work for Walmart in the US.

For a start, most Walmart stores sit outside dense urban areas, where space for housing, unlike in the UK, is not an issue. Tesco has identified 15 sites, most of which are in London. Also, Walmart Super Centers are usually located in large shopping malls, where other box chain stores are nearby and often share parking space. Walmart, despite many attempts, is not yet in New York, where demand for housing is high. Instead of building houses, they are shutting stores—269 globally and 154 in the US, according to Business Insider.

“The decision to close stores is difficult, and we care about the associates who will be impacted,” Walmart CEO Doug McMillon said in his statement. “We invested considerable time assessing our stores and clubs and don’t take this lightly.”

Walmart has more than 11,000 stores worldwide, including 4,655 stores in the US. The retailer said it still planned to open more than 100 US stores in the next year, including 50 to 60 Supercenters, 85 to 95 Neighborhood Markets, and seven to 10 Sam’s Club locations. Internationally, Walmart plans to open 200 to 240 stores within the next twelve months.

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Tesco is hoping that the capital they raise through their real estate strategy will allow them to buy back stores they are currently leasing—and also do deals with other retailers and restaurants, like McDonald’s, to set up micro shops in their stores. Walmart too, has McDonald’s. While Walmart has shown robust activity in its online business to the tune of $14-15 billion globally, it faces another problem, for which there is no easy solution. Its core shoppers don’t have the money to shop there anymore.

“Walmart is facing an almost perfect storm when it comes to top-line growth,” Moody’s vice president, Charles O’Shea, wrote in a note to clients earlier in the year. “Until the health of the lower-to-middle-income consumer improves, Walmart will continue to face macroeconomic headwinds in the US.”

And that doesn’t look good.

Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

Jeff is a writer, husband and father but not necessarily in that order. As a music journalist he counts Prince, Beyonce and Quincy Jones amongst those he’s interviewed. He's also owned and flipped homes in Brooklyn, NJ, CT and PA.

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