MARKS & SPENCER TO SELL KINGS, KEEP BROOKS BROS.
Byline: James Fallon
LONDON — Keep one, sell one.
Marks & Spencer PLC reaffirmed Tuesday it intends to hang on to Brooks Bros. and further expand the men’s and women’s wear retailer’s operations, both in the U.S. and internationally.
But it’s another story for Kings Super Markets, Marks & Spencer’s other U.S. subsidiary. The British company said it has appointed Morgan Stanley Dean Witter to handle a sale of the 25-store New Jersey chain. There is no time frame for the sale, a company spokesman said.
The decision was a simple one — Brooks Bros. has the potential to grow into a major international brand, while Kings is a profitable but niche player in the rapidly consolidating U.S. food retail sector. Because of this consolidation, the spokesman said Marks & Spencer believes it should have no trouble selling the chain quickly.
“Marks & Spencer is determined to develop a successful international business,” Guy McCracken, the company’s managing director of international, said in a statement. “The decision to retain Brooks Bros. clearly signals our intention to further develop this important part of our international portfolio.”
The spokesman said no firm decisions have been made on how to expand Brooks Bros., but he said this might be through joint ventures, franchises or wholly owned stores, which are most likely to be in Europe. Joseph Gromek, chief executive of Brooks Bros., revealed earlier this year that the U.S. retailer was in talks with its parent company about installing some Brooks Bros. shops-in-stores in Marks & Spencer units. Brooks Bros. also has been said to be looking for a site for a flagship store in London.
Brooks Bros. currently operates 148 stores in the U.S., 71 in Japan in a joint venture with Dai-Dho and six in Hong Kong and Taiwan in a joint venture with Dickson Concepts.
There had been rumors for months that Marks & Spencer planned to dispose of all of its U.S. operations following a strategic review that began earlier this year. But Peter Salsbury, who took over as chief executive in February, and McCracken insisted in May, when the firm reported its results for the year ending March 31, that Brooks Bros. and Kings would remain part of the group. Salsbury said Marks & Spencer planned to develop both companies as part of Marks & Spencer.
In the end, it was Kings’ local focus that led Marks & Spencer to decide to sell it. Ironically, Kings was one of the main reasons the British retailer entered the U.S. market in the first place when it paid $780 million for Brooks Bros. and Kings — as well as some rights to open stores in malls that were then owned by Robert Campeau — in 1988. Marks & Spencer planned to use Kings to roll out in the U.S. the successful food retail format it developed in Britain.
Problems with logistics and differences in consumer tastes led Marks & Spencer to abandon that plan, and it focused on expanding Kings as Kings. Kings, although smaller, was the more consistently profitable of its U.S. operations and last year reported a 5.6 percent increase in operating profits to $16.1 million, on a 6.3 percent increase in sales to $407.1 million.
The record of Brooks Bros. has been more checkered. Marks & Spencer struggled in the early years to find the right formula for the chain, and then-ceo Sir Richard Greenbury admitted that the British retailer had significantly overpaid for Brooks Bros. But Brooks Bros. has been more consistently profitable in the last few years since Gromek joined the company as its head in 1995. The U.S. retailer last year reported a 20.5 percent drop in operating profits to $20.6 million on a 5.8 percent rise in sales to $574.5 million; the drop in profits resulted mainly from problems in Brooks Bros. Japan.
The sale of Kings is part of the massive revamp under way at Marks & Spencer over the last eight months following Salsbury’s appointment. A Marks & Spencer spokesman admitted in a telephone interview that the management’s main focus is turning around its struggling U.K. operations, but that doesn’t mean it won’t continue to invest in Brooks Bros. during that time.
“If you look at the last six months and the actions we have taken and the things we have done, the pace is being stepped up,” he said. “We are distancing ourselves from what has gone on over the last 10 years and there is now an urgency to get things accomplished.”