M&S to shut over 80 stores and purge clothing business

London - Although analysts already predicted Marks & Spencer would be shuttering a number of its stores to help cut costs, the industry was still taken aback when the British department store announced it would be exiting 10 loss-making international markets. This means that M&S will be closing 53 stores in China, France, Belgium, Estonia, Hungary, Lithuania, the Netherlands, Poland, Romania and Slovakia.

In addition, M&S announced plans to cut down the number of home and clothing stores over the next five years. The department store group aims to have 60 less apparel and home stores - closing 30 and transforming the remaining into Simply Food stores. Marks & Spencer CEO Steve Rowe also revealed plans to open 200 new Simply Food stores as part of his turnaround strategy. At the moment Marks & Spencer current counts over 300 full-range stores which offer clothing, homeware and food as well as close to 600 Simply Food stores in the UK.

M&S to pull out of 10 loss-making International markets

"We have now completed a forensic review of our estate both in the UK and in our International markets. Over the next five years we will transform our UK estate with c.60 fewer Clothing & Home stores, whilst continuing to increase the number of our Simply Food stores," said Steve Rowe, M&S CEO in a statement. "In the future, we will have more inspiring stores in places where customers want to shop that complement our growing digital offer."

Outside of the UK, M&S International business consists of two divisions - an owned business, which is currently loss-making in a number of markets and a profitable franchise business that made of a profit of 87.3 million pounds last year. As part of its turnaround plan, M&S aims to cut down the number of fully-owned stores and shift its focus to established joint ventures and franchise partnerships. The British department store currently counts 267 franchise stores in 34 markets, as well as joint ventures in Greece and India. M&S also trade online in 21 markets via its own operational websites and marketplaces such as Myntra in India and Zalando in Europe.

The department store will continue to operate its own businesses in the Republic of Ireland, Hong Kong and Czech Republic and run its franchise stores. However, seeing as its owned business in ten markets incurred a loss of 45 million pounds on revenues of 171 million pounds, M&S is proposing to close all of its 53 owned stores in these ten markets. This includes ten stores in China, seven in France, as well as all its stores in Belgium, Estonia, Hungary, Lithuania, the Netherlands, Poland, Romania and Slovakia.

M&S noted that it will begin a consultation with approximately 2,100 employees working in these locations. If the proposals for the store closures go through, M&S will incur an estimated non-underlying costs of between 150 million and 200 million pounds. "Internationally, we propose to cease trading in ten loss making owned markets, but intend to continue to develop our presence through our strong franchise partners," added Rowe. "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."

M&S to close 30 clothing and home stores in the UK

M&S also announced the development of a new five year programme to improve its store estate, which will result in less, but more inspirational clothing and home stores which offer customers better range in more convenient locations. The new programme is set to affect more than 100 stores and led to a net reduction of 10 percent of its clothing and home space, with 60 fewer full line stores. M&S predicts non-underlying costs of its store reduction programme to cost approximately 50 million pounds per annul for the next three years, before rising to 100 million pounds in year four and five.

"In May, we laid out a number of questions which we would answer as part of our strategic review. We committed to creating a simpler business with customers at its heart, and taking action to start to recover our Clothing & Home business and continue to grow in Food," stressed Rowe. "Our aim is to build a sustainable business which will delight our customers, provide a robust foundation for future growth and deliver value for our shareholders in the long term."

The store closure announcements came as M&S revealed sliding sales and profit during the six months to the end of September. Clothing sales in current M&S dropped 5.9 percent, which is close to the 8.9 percent decline witnessed in the first quarter of the year. Like-for-like sales at M&S food stores also fell 0.9 percent, similar to the last quarter. Pre-tax profit fell 88 percent to 25.1 million pounds, in part due to higher pension costs as total sales declined 5.3 percent. “M&S delivered another set of painfully weak figures today as it fell victim to unseasonably warm weather which decimated sales growth," commented Stephen Robertson, Chairman, Retail Economics.

"That said, the weather has a short-term influence on demand and shouldn’t detract from the more serious challenges facing the iconic British brand. Admittedly, underlying conditions remain dire for apparel retailers but there’s no hiding from the fact that its tireless efforts to revive the struggling clothing business have failed to resonate with Mrs M&S. No one knows M&S better than their charming Chief Executive Steve Rowe. Doubtless the City will demand he uses every ounce of his long experience to take some calculated risks: business as usual will no longer suffice."

Photos: International M&S, courtesy of M&S