Tesco’s Sir Terry Leahy Talks Retail Strategy [MUSIC PLAYING] [Text on screen “The Street”] INTERVIEWER: Sir Terry Leahy, retail is a low margin, high failure rate business. So how did Tesco overcome the odds and become the third largest retailer in the world? [Sir Terry Leahy, Author of Management in 10 Words] SIR TERRY LEAHY: I think we innovated because you can't really make a difference in a low growth, mature industry like retailing unless you change the rules. We took risks that other retailers were not prepared to take. We went 24-hour opening. We developed new formats like Express. We launched the loyalty card. We were one of the first in the world online. And these things made the difference. INTERVIEWER: Well, you talk a lot about those strategies in your new book, Management in 10 Words. So one of those words is "loyalty." And in the book, you're not just talking about loyalty to customers, but employees as well. Can you talk about that? SIR TERRY LEAHY: Yeah. Loyalty really is, what benefit do you create for somebody? And in return for the benefit you give them, they will repay you with their loyalty. You engage them. Most of all, that matters with customers. But it also matters with other stakeholders, like employees-- indeed, like shareholders. If you create something worthwhile for them, they'll reward you. INTERVIEWER: Another word that you highlight in your book is "compete." How do you compete against the likes of Walmart, a true juggernaut in the industry? SIR TERRY LEAHY: Retailing is a really killing industry. There's competitors all over the world. We competed against Aldi, the German retailer, Walmart, Carrefour from France. And now from the developing countries, there's a lot of formidable local retailers. The important thing, I think, is to learn from the competitor quicker than they can learn from you. Don't look for the weaknesses in the competitor. Actually, respect their strengths, and see if you can take those on board into your business. But be yourself. Don't copy the competitor. Don't fight them on their home ground. Use your own strengths. INTERVIEWER: Well, you took Tesco global. How do you find out the local tastes? Because you want to be yourself, but you also have to cater to the local populations, correct? SIR TERRY LEAHY: Yeah, retailing is a local business. And those retailers who struggle are the ones you forget that. So first of all, you've got to be the best local retailer. You've got to tailor your offer completely to the local customer, as Tesco did here in the United States when we opened the Fresh & Easy chain. This was designed completely for the US consumer. INTERVIEWER: Let's go back to some of the words in your book. Another word that you highlight in your book is "courage." How do you know which risks are worth it? Because your competitors jump on high profile risks if they fail. SIR TERRY LEAHY: You're right. And that's actually that tough call for the CEO, to know how far he can stretch the business, but actually not stretch it beyond breaking point. Actually, in business, you can take a lot of risk. You can push a business further than most people think it can be pushed. And most risks don't really hurt you too much. There's only a few things that you know will really break the business. So generally speaking, you can push a business hard. But as the CEO, you've got the responsibility to know where the boundaries are. INTERVIEWER: Another chapter that I thought was interesting in the book dealt with the word "act." And in that chapter, you talked about tesco.com. So how has internet retailing affected traditional retailing? And what you think is the future? SIR TERRY LEAHY: Well, it was a slow burn. We started tesco.com way back in 1995. And it was the world's first grocery online business, and still is the world's biggest. Things didn't change much for five, six, seven years. But now e-commerce is really taking off, and it's changing retailing all over the world. Developing countries like China are going straight to e-commerce. It poses big challenges for traditional bricks-and-mortar retailers. But I believe if they embrace that challenge, if they move their business online, there still are advantages of being a traditional bricks-and-mortar retailer with an online arm-- a "bricks-and-clicks" operation. People know the name. They know what you stand for. They can find you online.