Feb 17, 2017 | By WGSN Insider
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Those anticipated cuts at Marks & Spencer are going to be deep at home and abroad. The UK-based retail giant Tuesday talked of “transforming” its UK ops and moving to a franchise model in its loss-making overseas business.
In the UK, around 60 Clothing & Home stores will close over the next five years. Instead, the business will increase its successful Simply Food store offer (see below) to actually raise its total UK store count.
That means M&S will reposition around 25% of its Clothing & Home spaces at a cost of around £50m per year for the first three years.
“In the future, we will have more inspiring stores in places where customers want to shop that complement our growing digital offer,” the retailer said in its weighty trading statement.
Overseas, the retailer is to pull out of 10 lossmaking owned markets and continue its move into a franchise model. That comes after 2015/16 losses of £31.5m while operating profits plummeted 39.6% to £55.8m.
M&S will close its 53 wholly-owned stores in those markets, including 10 in China and seven in France, as well its stores in Belgium, Estonia, Hungary, Lithuania, the Netherlands, Poland, Romania and Slovakia, with the loss of around 2,100 jobs. However, the retailer will continue operating its “profitable” owned stores in Ireland, Hong Kong and the Czech Republic.
That move will result in non-underlying costs of £150m-£200m over the coming 12 months, “eliminating annual losses of £45m”, it said.
By contrast, its franchise business (267 stores in 34 markets) made a profit of £87.3m last year and M&S noted its “commitment” to joint ventures in India & Greece.
“These are tough decisions, but vital to building a future M&S that is simpler, more relevant, multi-channel and focused on delivering sustainable returns,” it said.
Those big decisions come after the long-suffering business published its latest figures Tuesday showing half-year revenues rose just 0.9% to £4.99bn as underlying pre-tax profits plunged 91% slide to £15.9m ($21.8m), on the back of Clothing & Homewares struggling sales.
Clothing & Home sales fell 5.3%, and 5.9% on a comps basis, while its online sales rose just 0.3%. Total UK sales were up 0.1% but down 3% on a comps basis and International sales fell 1%.
“Given the further depreciation of sterling”, M&S also said it now expects to deliver year-on-year growth in Clothing & Home gross margin of between 0 and 50 basis points.
However, M&S also said it’s making progress in the clothing area with its full price value and volume shares rising, although it saw a 20bps decline in overall value share, according to Kantar World Panel. M&S said it now has 10% fewer clothing lines and has introduced a more contemporary colour palette for autumn, offers better fit and saw strong performances in core areas such as bras and T-shirts. And tweaks to areas where it already leads the market are starting to have an effect, as in school uniform sales, up around 10% on-year in Q2.
It’s made changes to store layout too and taken on more staff to help customers on the shop floor. “As a result, our customer satisfaction levels are the highest they have been for over three years.”
And it’s focusing on the brands “that are most relevant to our customers, such as Autograph, per una and Blue Harbour” but will remove the Indigo, Collezione and North Coast sub-brands.
“In a tough market, we are seeing early signs that our actions to recover our Clothing & Home business are working,” M&S said. “We are restoring our price integrity and have seen strong volume improvements, particularly in opening price points, as we ensure we are price competitive.”
The retailer also noted it has hired 3,300 new customer assistants “to work in areas that really matter to our customers such as fitting rooms and till points”.
CEO Steve Rowe said: “Our aim is to build a sustainable business which will delight our customers, provide a robust foundation for future growth and deliver value for our shareholders in the long term. We have made good progress on our plans and customers are already noticing a difference, particularly in Clothing & Home.”
In the food arena results were so much better. M&S said it “delivered another good performance” and “continues to outperform the market”. Food sales rose 4% although they were down 0.9% on a comps basis.
The retailer opened 21 food stores with the Simply Food store performance “ahead of expectations” with those opened in the past year “exceeding sales forecasts by 17%”. Food gross margin was up 10bps on the year at 32.6%.
M&S said it will also continue to develop its franchised Food business in France “where there is demand for our quality, innovative products at convenient locations”.
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