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UPDATE 1-Tesco to slow U.S. expansion due to downturn-paper

Published 11/12/2008, 05:53 AM
Updated 11/12/2008, 05:56 AM

* Opens 100th U.S. store on anniversary of launch

* Slower opening programme, flexible on N. California entry

(Adds comments by company, analyst; background, share price)

LONDON, Nov 12 (Reuters) - Tesco Plc, the world's third-biggest retailer, is slowing down its expansion in the United States because of the economic downturn there, the head of its U.S. business said in an interview on Wednesday.

Tim Mason told the Times newspaper that the British group's plans to expand its Fresh & Easy chain into northern California could be put on hold.

"The industry is in a very different place than when we came out and did the feasibility research three years ago. Then the U.S consumer confidence index was at the highest level it had ever been. In October the U.S. consumer confidence index was the lowest it has been since 1967, so it's a big change.

"We will still open stores every week, but it's prudent to slow things down a bit," Mason was quoted as saying, as Fresh & Easy announced the opening of its hundredth store on the anniversary of its entry into the United States.

Tesco had hoped to have 200 Fresh & Easy stores operating across southern California, Arizona and Nevada by February next year. Mason said now he hoped to reach that target by next November.

"There's a big cost step for us when we open up northern California and we can be quite flexible about when we do that," Mason was quoted as saying.

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"As things get to a point that we like how it's all coming together, we like the way the stores are growing into the second year, then we can accelerate. If the economy takes a turn for the worst, it would be unwise to accelerate."

Tesco's challenges in the United States are matched by tough trading conditions in many of its other markets.

Earlier this week, Britain's biggest retailer said like-for-like sales in South Korea, its largest market outside Britain, had fallen in recent weeks.

Two industry surveys on Tuesday also showed the group was growing more slowly than rivals Asda and Wm Morrison in its main UK market, despite a big investment in a new range of discount brands.,

Citi analyst James Anstead was relaxed about the slowdown in Tesco's U.S. store opening programme.

"The slippage of the store target does not concern us greatly, as it is more a tempering of acceleration rather than a material slowdown," he said in a research note.

At 1030 GMT, Tesco shares were down 1.1 percent at 328 pence, underperforming a 0.1 percent decline in the DJ Stoxx European retail index, valuing the business at about 26 billion pounds ($40.2 billion). (Reporting by Mark Potter; Editing by David Holmes and Jon Loades-Carter)

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