Marks & Spencer is expected to ramp up its store-closure plan as a result of falling profits and tough trading conditions on the high street.
In 2016 M&S announced it would close 30 stores as part of an overhaul designed to slash by 10% the amount of shopfloor space devoted to its struggling clothing arm. But industry sources suggest M&S’s chief executive, Steve Rowe, has been working on a bolder restructuring plan with the new chairman, Archie Norman, before its first-half trading update.
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Rowe, who took over the top job last year, is seeking to revive the fortunes of the 133-year-old retailer whose profits have gone backwards in recent years. Analysts expect pretax profits to have fallen by more than 10% to £201m in the six months to the end of September and have been calling for the retailer to undertake a more drastic closure programme as clothing sales shift online. The retailer made a full-year profit of more than £1bn in 2008.
November 2016, when Rowe set out a five-year turnaround plan for the business, he said 30 of M&S’s more than 300 “full-line” stores – which sell clothing, homewares and food – would close down. A further 45 would be downsized or converted into food-only stores. Analysts suggested some of these targets could now be revised.
Next boss Simon Wolfson set off alarm bells in the City with his warning of “extremely volatile” trading in recent weeks. Britons are feeling the pinch as inflation erodes their spending power, with growing fears that the spending squeeze could affect sales during the key Christmas trading period.
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Investec analyst Kate Calvert expects M&S to report a 12% drop in pretax profits to £203m as poor sales and the weakness of sterling affect its profitability. Calvert, who rates the shares as a sell, said it was “still early days” in Rowe’s turnaround plan: “M&S is playing catch up in a difficult mid-market position.”
Analysts think like-for-like clothing and home sales will be down 1.4% for the half while underlying food sales will be down 0.3%.
Calvert said investors would be especially focused on the performance of its food halls where trading has lagged behind rivals in the last two quarters. In the summer, Rowe conceded the food business had made some mistakes, including axing some productsthat customers had missed. An attempt to cut back on waste had also affected the availability of meat and fish.
Whitman Howard analyst Tony Shiret said the UK closure plan was “nowhere near aggressive enough” given the scale of the decline in its store sales over the last five years. He also questioned plans for hundreds of new Simply Food outlets.
“The space reduction in clothing and home looks too little,” said Shiret. “Meanwhile, food is being pushed out aggressively which is at odds with the general space dynamic among food retailers.”
If M&S does decide to close more stores it will deal a blow to the towns involved, where the retailer is often the main destination store, especially following the demise of BHS. But with more purchases made online, stores in smaller or less attractive town centres and shopping centres are finding life difficult especially amid rising costs for retailers.
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The CBI’s recent monthly retail survey showed high street sales were falling at their fastest rate since the height of the recession in 2009 as struggling households put the brakes on spending. The grim reading chimes with new figures from Ipsos Retail Performance’s shopper tracker which showed a 9.1% drop in shopping centre footfall in October, compared with a year ago.
“The UK high street is going through the wringer just now, and the last thing retailers need now is for ongoing demand to soften significantly,” said Dr Tim Denison, director of retail intelligence at Ipsos Retail Performance.
Denison said he expected to see signs of recovery in the November 2017 figures as the steepness of the decline pointed to consumers waiting for this month’s Black Friday discounts before going shopping.
(Source: The Guardian)