LONDON — Food, glorious food, is the future at Marks & Spencer under new chief executive officer Steve Rowe and less so wooly sweaters, blazers and dresses.
Britain’s iconic retailer — which at one time dominated the U.K. clothing market with its signature St. Michael brand — plans to downsize its struggling clothing business to ramp up expansion of its Simply Food format. M&S also will pull out of major international markets, including France, where M&S will shutter the Champs Elysées flagship that opened in 2011, and China, where it plans to shut 10 stores.
Rowe, who’s spent his career at the retailer, set out his austerity plan earlier this year, downsizing head office headcount and attempting to put a renewed focus on the core, middle-aged U.K. female customer. The latest plan comes after the retailer on Tuesday reported a 91 percent slide in first-half profits and broadly flat sales on Tuesday.
But investors gave the plan a thumbs down, with shares sinking 5.2 percent to 3.31 pounds, or $4.11, by the close of trading on Tuesday.
Rowe said he’s committed to creating a “simpler business,” by shrinking the space given over to clothing and home collections and continuing to grow in food.
“These are tough decisions, but vital to building a future M&S that is simpler, more relevant, multichannel and focused on delivering sustainable returns,” he said.
The road is not an easy one: First-half profits fell to 15.9 million pounds, or $21.8 million, due to lower clothing and home sales (they fell 5.3 percent in the half) and a “significant charge” relating to pension changes. Sales edged up 0.9 percent to 4.99 billion pounds, or $6.84 billion.
Rowe also outlined plans to pull M&S wholly owned stores out of 10 international markets. The profitable franchises, in markets such as Greece and India, will remain, while the focus going forward will be on the British stores.
“We remain fully committed to growing our international business, but we have to take action to create a more sustainable business model,” said Rowe during the results presentation.
M&S will close all 53 of its wholly owned international units, including 10 in China and seven in France, as well as all of its stores in Belgium, Estonia, Hungary, Lithuania, the Netherlands, Poland, Romania and Slovakia.
This is not the first time M&S has retreated from foreign markets. In 2001, the British retailer closed all its European stores, before returning to France in 2011 under Rowe’s predecessor Marc Bolland. This will be the second time M&S has closed its French flagship.
The latest round of closures will cost 150 million to 200 million pounds, or $186 million to $250 million, over the next 12 months, eliminating annual losses of 45 million pounds, or $56 million.
Separately, Adam Colton, managing director of Greater China at Marks & Spencer, said the mainland Chinese stores continue to make a loss.
“It is clear our business in Greater China is separated into two parts: a profitable business in Hong Kong and loss-making retail business in China. In Hong Kong, we have an established presence with 26 stores and our customers have embraced our quality, innovative clothing and food products,” he said.
At its British stores, M&S is implementing a five-year plan to improve productivity. It will also slash about 25 percent of space dedicated to clothing and home collections, and continue to roll out its stand-alone food stores.
Although 60 full-line stores will shut, the company said the net number of M&S stores would increase as a result of the increased focus on Simply Food units.
Honor Strachan, lead analyst at Verdict Retail, said rejigging the space currently dedicated to the clothing and home collections will be costly — 50 million pounds, or $62 million, a year for the first three years — but will result in a more “modern and relevant” shopping environment.
Some 240 full-line department stores will remain, and Strachan said they will be a burden. “This is still a huge chunk of real estate to improve, with many stores requiring full overhauls. As online penetration continues to rise, M&S must consider further closures, with few modern-day non-food retailers requiring such extensive space,” she said.
She also said Rowe has still not answered a fundamental question: “Who is M&S targeting and where does it want to position itself in the U.K. clothing market? Though it has tried to remove shopper confusion by displaying clothing in product categories, and making steps towards improving availability and slimming down options, these actions seem like Band Aids for its core issue of not understanding which segment of the market to go after.”
She added that M&S should be willing to take a risk to hone its offer and target a smaller shopper group with “relevant, desirable and differentiated” clothing.
Rowe said the company is seeing “early signs” that its recovery plan for clothing and home is working, with prices remaining steady and volumes growing, despite the 5.3 percent drop.
“We now have 10 percent fewer clothing lines that we have bought with greater authority and we have introduced a more contemporary color palette for autumn. We also delivered on our commitment to improve the ‘fit’ of wardrobe essentials and saw strong performances in core areas such as bras and T-shirts,” he added.
In the all-important food division, sales increased by 4 percent, with like-for-like sales down 0.9 percent in what Rowe described as a competitive market.
During the half, the company opened a total of 21 food stores. He said the performance of new Simply Food stores was ahead of expectations with stores opened in the past year exceeding sales forecasts by 17 percent.