Tesco blames high cost of online advertising as it shuts Tesco Direct website

Tesco says the move is an “essential step” towards simplifying the customer experience and establishing a more sustainable non-food offer.

Tesco is closing its non-food website Tesco Direct following a detailed review that concluded there is “no route to profitability” for the loss-making business, which was launched in 2006 to take on Amazon.

Tesco says the online operation faced a number of significant challenges, including high costs for fulfilment and online marketing, that have prevented it from delivering a sustainable offer as a standalone non-food business. Its full-year 2018 results shows that while food sales were up 2.9% year on year, general merchandise (GM) was down 0.4% and online GM sales fell by 11.3%.

The website will cease trading on 9 July 2018, putting approximately 500 jobs at risk, mostly at its Fenny Lock fulfilment centre. Tesco now plans to sell non-food items such as homeware and toys through Tesco.com, and has already begun transitioning some categories.

Charles Wilson, CEO of Tesco UK & ROI, adds: “We want to offer our customers the ability to buy groceries and non-food products in one place and that’s why we are focusing our investment into one online platform.

“This decision has been a very difficult one to make, but it is an essential step towards establishing a more sustainable non-food offer and growing our business for the future.”

Wilson took over as boss of the UK business in early March following Tesco’s acquisition of Booker. Clive Black, head of research at Shore Capital, calls the closure a “clear signal that the company is taking decisive action and the first demonstrable statement by Charles Wilson since he joined”.

The move forms part of Tesco’s strategy to create a simpler online experience for customers, allowing them to purchase general merchandise, clothing and groceries all in one place. Tesco says opportunities to selectively build on this offer will be made as investment is focused on a single online platform.

The closure follows Tesco’s decision to shift focus back on its core business. It has already closed or sold non-core assets such as Blinkbox, Giraffe and Euphorium, as well as ending initiatives such as its Hudl tablet.

Steve Dresser, managing director at Grocery Insights, says the move marks “another step in the right direction” but that it was “another epic waste of money” by Tesco management.