Lemons, Smirnoff Vodka And Gordon's Gin Are Displayed At A Tesco Extra Supermarket.
Lemons, Smirnoff Vodka and Gordon's Gin are displayed at a Tesco Extra supermarket in Watford, north of London August 8, 2013. Tesco, the world's number three retailer, is hoping the allure of casual dining, coffees and even yoga will help tempt Britons back to its ailing retail park stores as part of a 1 billion pound ($1.55 billion) push to revitalise business. Reuters/Stringer

Tesco (TSCO), the world's second-biggest retailer behind Walmart, plunged into unexpected crisis on Thursday when its Chairman announced resignation, on the back of an accounting scandal for overstated projection of profits.

As a leader in multinational grocery and general retailing in the U.K, Tesco enjoys a global brand equity spread in 12 countries across Asia, Europe and America. Richard Broadbent, Chairman, said he would step down once a successor is found. The company confirmed its financial troubles are on, and there has been a 99 percent drop in first-half net income to 6 million pounds or 9.6 million U.S. dollars, reported AP.

Three Options

To face the crisis, Chief Executive Dave Lewis outlined three options: to recover competitiveness in the U.K. to protect the balance sheet and go on a long journey to build trust and transparency into the brand and business, Tesco had launched an accounting investigation in September, after it found first-half earnings estimate inflated by 250 million pounds due to accounting errors and booked some income prematurely and delayed the recognition of some costs.

Tesco said the estimated profits had been overstated by 263 million pounds, than what it flagged initially. It is unclear, whether it was an accident or a deliberate effort to manipulate profit forecasts to beat the rising competition. It sacked eight executives as the investigation progressed and Tesco was forced to delay its first-half earnings report by three weeks to sort out its books.

Tesco had been the undisputed king of the British grocery scene. Of late, Tesco has been struggling to shore up falling sales and profits as low cost competitors starting hitting its market share. The company's overseas expansion also floundered, notably in the U.S where the Fresh & Easy" operations were wound up.

Flawed Strategy

Analysing Tesco crisis, Louise Cooper, a former Goldman Sachs stock broker in the financial blog CooperCity noted that "For years, Tesco and other big supermarket chains expanded by opening new outlets, taking sales from independent shops that could not compete with their scale. But that easy strategy is gone and adding new stores is dysfunctional now". Cooper quoted a Roxette song, 'It must have been love, but it's over now.' "

After the turbulence, Tesco shares were tumbled 6.5 percent. There was disappointment that no new strategy for salvaging the company had come from chief executive Dave Lewis. But he told BBC that indications are that that shoppers did not want Tesco's expanded range of products. A similar high profile exit from Tesco was that of Philip Clarke, a former chief executive, who stepped down in July after the company announced a profits warning.