operations. The stock recovered much of the losses and closed down by 0.3%. But Tescos troubles might take a little longer to clear. Its slump in Europe shouldnt have come as a surprise, as it is facing many of the same problems on the continent as it did in the U.K. last year when it issued its first profit warning in 20 years. Its a pretty simple set of challenges: Massive stores stocked full of discretionary electrical goods, when consumers in the midst of a recession want smaller, local, cheaper shopping that they can find at discount stores. Tescos international business was supposed to insulate it from slowing growth in grocery in the developed markets, and it managed just such a balancing act for several years. But whats left after retrenchment in the U.S., Japan and to some extent China (where it has taken a partner) is a 70% slump in profits in Europe and falling same-store sales across its entire portfolio. Tesco has defended its dismal European profits by pointing out that it has invested in markets like Poland in advance of expected growth. Citi analyst Alistair Johnston accepts this argument. The repositioning in Poland is a genuine factor. Jeronimo Martins and Eurocash have both highlighted the tougher competitive conditions lately and Tescos promotional activism is mentioned as a specific causal factor, he wrote. We certainly believe this activism is appropriate after years of relative like-for-like underperformance. But he adds that in that case We wonder whether similar activism might be warranted in other regions also, which perhaps underscores the extent of potential earnings downside for the group as a whole. Unfortunately, says Rahul Sharma, retail analyst at Neev Capital, the big retailers are all exposed to the wrong format. [ Carrefour , Tesco and Wal-Mart Stores Inc] are all trying to change the shape of their business [into convenience formats] but when its 90% hypermarkets it takes a long time. He is equally concerned about price and price perception because the discounters are taking share in all markets, from the U.K.
tomorrow in Luxembourg. Europe is faced with a high level of structural unemployment and this is not going to change any time soon, said Annamaria Grimaldi, an economist at Intesa Sanpaolo SpA in Milan. The recovery is happening painfully slowly and thats another reason why well see jobless rates far above 11 percent well into 2015. Even after the currency bloc emerged from its longest-ever recession, economists predict unemployment to keep rising and peak at 12.3 percent in the final quarter of this year. The job markets resistance to an improving economy has been the subject of political debate across the region, with European Central Bank President Mario Draghi urging governments to implement decisive structural reforms to fight unemployment. Stocks Decline European stocks sank today as the U.S. faced the first government shutdown in 17 years and Italian Prime Minister Enrico Letta fought to save his administration. The Stoxx Europe 600 Index fell 0.8 percent to 309.76 at 4:11 p.m. in Frankfurt . The euro was little changed at $1.3530. Italys Letta said hell request a confidence vote for Oct. 2 to try to save his five-month-old administration after Silvio Berlusconi withdrew his support from the ruling coalition and pulled his ministers from cabinet. The Organisation for Economic Cooperation and Development sees Italian unemployment at 12.5 percent next year.
Europe’s Biggest Under-Achieving Clubs Featuring AC Milan, Dinamo Kyiv, Schalke
Then again, their ability to take points late in games has been key this season, and they’ll hope that their resilience pays off in a big way to turn their form around. 6. Sevilla Denis Doyle/Getty Images Sevilla are our biggest movers of the week, rising from the bottom spot up to sixth, thanks to a hugeand hugely important4-1 win over Rayo Vallecano. Ivan Rakitic was the main man, striking twice for Sevilla (along with a late Carlos Bacca goal), to seal Sevilla’s first win of their La Liga season, leaving Rayo at the bottom of the league table in their place. Unai Emery’s men followed that result up with a 1-1 draw at Real Sociedad after giving away an early lead and ending up with 10 men. Sevilla are up to 14th and will hope that these two results are a catalyst for improving their season after such a dreadful beginning to the campaign. They face Almeria next, who are the last remaining side in Spain’s top flight without a win. 5. Schalke Valerio Pennicino/Getty Images Schalke just cannot seem to get their Bundesliga season up and running with any sort of consistency right now. Wins against Leverkusen and Mainz were followed up by a 4-0 thumping by Bayern Munich. They’ve been unable to get back into a winning form after drawing 3-3 with Hoffenheim most recently, despite leading twice by two goals before halftime. Kevin-Prince Boateng, Joel Matip and Marco Hoger all found the net before the break last weekend, but Schalke’s defence, the fifth most-porous in the league, still didn’t find it enough to secure an away win. It’s just two wins from seven now for S04, who are two places outside of the relegation playoff spot. They face eighth-place Augsburg at home at the weekend.