November 8, 2016 / 7:21 AM / 4 years ago

M&S to close stores and reduce clothing space

LONDON (Reuters) - Britain’s Marks & Spencer plans to shut more than 80 stores at home and abroad at a cost of up to 550 million pounds as its new boss tries to revive the retailer by switching space towards food and away from fashion.

M&S’s latest attempt at a turnaround after several false dawns will see its UK space profile shift to 50 percent clothing and homeware and 50 percent food, from a current two-thirds/one-third split.

The news came as the company reported a 19 percent slump in its first-half profit on Tuesday and another decline in quarterly clothing sales.

The shares fell up to 7 percent before closing down 5 percent at 331 pence, a 25 percent drop so far this year.

The number of M&S shares out on loan has risen 60 percent since mid-September with investors betting they will fall, data from FIS’s Astec Analytics showed.

Steve Rowe, a company veteran who took over as chief executive in April, is tasked with reviving a 132-year-old institution that has fallen out of fashion over the last decade but remains Britain’s biggest clothing retailer.

“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 told reporters.

M&S has seen its market share eroded by rivals like Next and a push from supermarkets into clothing, while younger shoppers favour Primark and H&M.

Rowe plans to close about 30 UK stores selling clothing, homewares and food and downsize or convert another 45 into food stores over five years. That will mean a reduction of 10 percent in floorspace devoted to racks of skirts, jumpers, trousers and towels.

After taking account of store openings in under-served areas a net 60 fewer UK stores will be selling the full M&S range by 2021.

The cost of the programme is expected to be 350 million pounds.

“This is not about the M&S brand disappearing,” Rowe told reporters. “In fact with our Simply Food (opening) programme we will be in more locations in the future than we are in today.”

M&S plans over 200 new food stores by 2018/19. Traditionally lower margin, food contributes over half of the group’s revenue and about a third of its profits.

M&S also added another chapter to its chequered history abroad.

Undoing some of the expansion overseen by his Dutch predecessor Marc Bolland, Rowe plans to close 53 stores in 10 loss-making markets, including France, Belgium, Holland and China, at a cost of 150-200 million pounds over the coming year, concentrating instead on its profitable franchise model.

Some 2,100 employees will be affected. Staff at M&S’s Brussels store immediately went on strike.

Pedestrians walk past a Marks & Spencer food store in Paris, France, November 8, 2016. REUTERS/Christian Hartmann

“PRAGMATIC”

Rowe’s moves were described as “sensible” by Simon Gergel, chief investment officer for UK equities at Allianz Global Investors, a top-40 M&S shareholder according to Reuters data.

“It feels like they’re taking the right types of action and being fairly pragmatic about it. It’s encouraging, they haven’t ducked the issue,” he said.

But Tony Shiret, analyst at Haitong Research, said Rowe hadn’t been radical enough.

“It should have gone further in its UK clothing space closure – 10 percent over five years is not that much in the context of UK clothing and home sales densities in-store down 20-25 percent over the last five years,” he said.

M&S will seek to simplify its clothing ranges by removing the Indigo, Collezione and North Coast labels.

Rowe has also pledged to revive the clothing business 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.

He said on Tuesday there were “early signs of improvement”, pointing to a rise in full-price clothing market share in the second quarter.

Pedestrians walk past a branch of Marks & Spencer in northwest London, Britain July 8, 2014. REUTERS/Suzanne Plunkett/File Photo

M&S reported an underlying pre-tax profit for the six months to Oct. 1 of 231 million pounds - better than analysts’ consensus forecast of 216 million pounds.

Quarterly underlying clothing and home sales fell 2.9 percent - ahead of analysts’ average forecast of down 3.9 percent and an improvement on a first quarter slump of 8.9 percent. Food sales fell 0.9 percent.

Additional reporting by Emma Thomasson and Maiya Keidan; Editing by Keith Weir, Louise Heavens and Greg Mahlich

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