May 24, 2011 / 5:44 AM / 8 years ago

Marks & Spencer to revamp stores in tough market

LONDON (Reuters) - Retailer Marks & Spencer will test new store formats tailored to local needs as it looks to coax shoppers to spend in a tough trading environment and build on a 13 percent rise in full-year profit. Britain’s biggest clothing retailer, which also sells upmarket foods and homewares, said on Tuesday the new formats would sell products selected against five local criteria — affluence, demographics, competition, regionality and ethnicity.

A branch of retail store Marks & Spencer is seen in central London April 6, 2011. REUTERS/Toby Melville

The stores would also have improved layouts and signs and better showcase M&S’s sub-brands.

“Customers have told us that our stores are not always easy to shop,” Chief Executive Marc Bolland told reporters, noting the firm’s last store modernisation, under his predecessor Stuart Rose, had not delivered the “inspirational shopping environment” he desired.

He said the tests, part of a plan unveiled in November to deliver additional sales of 1-1.5 billion pounds over three years, would start in October.

“We’re not here doing rocket science, we’re doing best practice good retailing,” he said, noting that he successfully carried out a similar “segmentation” exercise at grocer Morrison’s before he was enticed to join M&S a year ago by a 15 million pound pay deal.

Retailers are mostly struggling as shoppers are hit by rising prices and austerity measures. Clothing chains are also facing soaring cotton prices.

M&S said it had made a good start to the new financial year but expected trading conditions in the year ahead to be challenging, echoing recent comments from rivals.

Retail sales grew more slowly in May, although they beat expectations, and firms are cautious about the outlook for June, a survey by the Confederation of British Industry showed on Tuesday.

“It’s going to be a difficult year on the consumer side, but they (consumers) know that. They know it’s going to be a year of more choices,” said Bolland.

“They are buying into quality, they are buying into smaller ticket items instead of bigger ticket items, and they are buying into treats,” he said.

At 2:00 p.m., M&S shares were down 2.5 percent at 387.2 pence, handing back some of their recent strong gains and staying below the 400 pence a share level of British billionaire Philip Green’s indicative takeover proposal in 2004.

“We suspect the stock will now see a period of consolidation after an almost 15 percent rise in the share price over the last quarter,” said Seymour Pierce analyst Freddie George.

M&S shares have outperformed the STOXX Europe 600 retail index by 6 percent this year.

The 127-year-old group, which serves 21 million Britons a week from around 700 stores and also has more than 320, mostly franchise, shops in 41 territories, made a profit before tax and one-off items of 714 million pounds in the year ended April 2.

That was ahead of a forecast for 710 million pounds in a company poll, helped by market share gains in both clothing and food, driven by new products such as stormproof suits, a Nearly Naked lingerie range and French-inspired Bistro ready meals.

Revenues rose 4.2 percent to 9.3 billion pounds, and the dividend was increased 13.3 percent to 17 pence a share.

“There is a feeling that a lot of work has been going on behind the scenes which will not be visible until later in the year, Espirito Santo analysts said.

They said revamped stores and improved presentation of sub-brands would address a key criticism of M&S customers.

M&S, which saw profit plunge from 1 billion pounds at the start of the economic downturn, has been outperforming rivals recently, helped by strength among older and more affluent customers coping better as incomes are squeezed.

Investors are also warming to Bolland’s plan to revamp British stores, expand online and overseas, and improve logistics and marketing, all of which have seen him make a string of high-profile management appointments.

Bolland told reporters surging cotton prices had less impact on M&S than on rivals, many of which sell cheaper goods where raw materials make up a larger proportion of the price.

Finance director Alan Stewart played down suggestions the group might be interested in the auction for a majority stake in grocer Iceland Foods.

“I think the fit with Iceland and M&S is one which most people would struggle to perceive as a good fit,” he said.

Editing by Hans Peters and Will Waterman

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