Rumours are swirling that Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) may be set to launch its own tablet.
Competing with the likes of Amazon and Apple seems like a risky move, but could this make sense for Tesco and its shareholders?
Let's take a closer look.
We're living in a digital age
When taking the helm at Tesco in 2011, chief executive Philip Clarke outlined the six areas in which he was to be judged -- and "become a multichannel retailer wherever we trade" was on that list.
Given Tesco's size, Mr Clarke's ambition is not something that will achieved overnight. That said, Tesco has made significant progress under Clarke's eye, rolling out virtual stores in South Korean subways and so-called dotcom stores (stores designed specifically for filling online orders) in Central Europe, as well as building out a Click and Collect programme.
This has all helped Tesco grow its online sales overall, but it's still losing digital sales -- an area with massive potential -- to Amazon and Apple.
So, what to do with all those CDs and DVDs?
This is still the real world
As Tesco transitions from a traditional retailer to one with a greater balance between online and real-world services, its operations should become more cash generative (lower investment in physical space as online sales increase).
To do this, it needs to maximise floor space at its bricks-and-mortar stores in order to be as productive as possible.
And CDs and DVDs take up a lot of room, so I think that moving them out of the stores and offering them online makes a lot of sense.
Introducing a Tesco tablet would give Tesco shoppers a direct line to all of Tesco's digital offerings. It could also be a nice boost to the overall shopping experience -- imagine strolling through the store with your Tesco tablet, managing your shopping list online and even being alerted to the best deals.
Foolish bottom line
For now, the Tesco tablet is just a rumour. But it's one I'm paying attention to, even though I don't think the tablet is a 'game-changer' for a retailer as large as Tesco.
This is more of a defensive play to get back lost sales, but I think it's a necessary move to help Tesco regain market dominance -- in the UK and internationally.
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