Marks & Spencer has experienced a “Dunkirk moment” after announcing plans to withdraw from 10 overseas markets, according to a leading analyst.
M&S said it would shut about 30 stores at home and 53 abroad, with its new boss focusing more on food and less on its struggling clothes and homewares ranges.
The retailer, whose shares have fallen 22 per cent so far this year, reported an 18.6 per cent slump in first-half profit and another fall in quarterly clothing sales.
Steve Rowe took over as CEO in April and has the tough task of reviving a British institution that has fallen out of fashion.
“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,” he said.
So far, Mr Rowe’s priority has been trying to turn around M&S’s underperforming clothing and homewares business. But he outlined how the firm will streamline its British store estate of over 900 stores over five years and detailed a rationalisation of its international operations. M&S said it would reposition about 25 per cent of its UK clothing and home space, closing about 30 full line UK stores and changing around 45 stores to only sell food. Other stores would be re-located.
The cost of the programme would be £50m for the next three years, rising to about £100m in years four and five.
The company’s expansion plans will focus on M&S’s food business, which contributes over half of group revenue and about a third of profit. In May, Mr Rowe said M&S would add an additional 200 food shops by 2019.
M&S will also exit its loss-making owned business across 10 international markets, including France and China, at a cost of £150m to £200m over the coming 12-month period, thereby eliminating annual losses of £45m, leaving it with franchised stores.
The firm currently trades from 468 overseas stores across 58 international markets, with 194 owned stores and 274 franchise stores.
Mr Rowe has pledged to revive M&S’s clothing by improving ranges and availability, cutting prices and reducing promotions. However his plan, outlined in May, came with a warning of a short-term dent to sales and profit. M&S reported an underlying pre-tax profit for its first half to October 1 of £231.1m – better than analysts’ consensus forecast of £216m but down from £284m a year earlier.
John Ibbotson, director of the retail consultancy Retail Vision, said: “M&S’s humiliating withdrawal from 10 overseas markets is nothing less than a Dunkirk moment for an iconic British brand. When in July it posted its worst results for a decade, many thought things couldn’t get any worse for the venerable retailer. But they just have. And then some.
“The collapse in profits reveals both the systemic problems in the brand’s offering, and its abject failure to tackle them. Despite the consistent success of its food lines, clothing and general merchandise still accounts for half of M&S’s business – and its seemingly terminal decline has turned it into a giant, profit-sapping albatross around Steve Rowe’s neck.”