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We've changed the way we shop and Tesco is struggling to adapt

Tesco had a much better Christmas than everyone expected but it's a sign of both the times and Tesco's malaise that a fall in sales of 0.3% on Christmas last year (a bad one) is seen as something of a triumph.

From the outside looking in, Tesco is a deeply troubled company - a retail giant struggling to adapt to the changing economics of industry which it became accustomed to dominating.

We have changed the way we shop and the result is painful upheaval.

Tesco's UK business is still profitable (even if you look through the recent accounting fraud) but unless the trajectory changes it soon won't be and so today the new chief executive, Dave Lewis, announced a series of eye-catching moves in an attempt to cut costs, strengthen the company's balance sheet and revive its fortunes.

Out goes the dividend to shareholders this year, in comes the chief executive of Halfords, Matt Davies, to run Tesco's UK and Ireland business.

Assets are being sold. Anything that's deemed non-essential is being thrown overboard. The online streaming service Blinkbox (loss-making) is being offloaded to TalkTalk along with Tesco's broadband business (70,000 customers) - perfectly sensible but probably a better deal for TalkTalk than Tesco given how little has been paid for it.

Dunnhumby is up for grabs, other assets sales will follow but no there was no news today about the revaluation of Tesco's vast property portfolio. The widespread belief is it's not worth anything like what it was, the expectation is that a multi-million pound loss will have to be realised at some point.

Lewis wants to make savings of around £250 million a year. Forty three unprofitable stores are to close (we yet don't know where), 49 future store projects are being abandoned - most of them large, that's more than 2/3 of the company's development programme. Tesco's headquarters in Cheshunt is to be shut down and relocated to Welwyn Garden City - it will be smaller in future; shrinking in proportion to the company it supports.

Significant numbers of jobs will be lost, both existing and planned. Lewis won't say how many but it will inevitably be measured in thousands. It's worth noting though that Tesco will still be Britain's largest supermarket and by some distance with 3,200-odd stores and 330,000 staff.

The company's headquarters in Cheshunt, Hertfordshire, is to close in 2016 Credit: PA

Lewis this morning praised the "passion and enthusiasm" of the people who work for Tesco. Keeping them motivated in the short-term may be tricky. Leaving aside the uncertainty over job losses, Tesco also plans to close its final salary pension scheme to all staff. The scheme is in deficit (£3.2 billion) and Tesco is one of the last FTSE 100 to operate one but it's bound to be missed. Retail pay is notoriously poor, this was a genuine benefit. The new scheme will be more affordable, it will also be less generous.

Tesco's share price has jumped 7% this morning but is still 40% lower than it was a year ago. Nettle-grasped? Lewis says himself, "success will be measured at the checkout".

The modest fall in sales over the six weeks of Christmas trading counts as an improvement but note: profit forecasts have not been adjusted. Tesco still has to prove it can compete - not least with the likes of Aldi and Lidl.

Tesco still faces competition from the likes of Aldi and Lidl Credit: PA

Lewis is promising shoppers better service and availability as well as "easy to compare, lower, more stable prices you can trust". He is trumpeting average reductions of 26% across 300 lines but he won't yet put a number on how much this discounting will cost the company. Tesco's profit margin in UK has dropped to just over 2 pence in the pound, there's not much room to cut aggressively without self-harm.

One final thought. In all the (understandable) hullabaloo about Tesco we should not forget that Marks and Spencer had a stinker of a Christmas. Record sales of food, of course, but a 14th consecutive quarterly drop in clothing sales. The company blames the warm weather in October, November. Fair enough but, once again, some of M&S's problems are self-inflicted - the company's online sales distribution centre was overwhelmed in December, choking at a crucial moment.

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