LONDON (Reuters) - Marks & Spencer (MKS.L) will speed up store closures after falling sales and cost pressures dragged first-half profit lower, underlining its struggle to regain the loyalty of British shoppers.
M&S, Britain’s biggest clothing retailer, also said it would accelerate the relocation and downsizing of other stores - part of Chief Executive’s Steve Rowe’s five-year turnaround plan that is set to initially dent profits.
And while still planning to grow its food business, M&S will slow down openings of standalone ‘Simply Food’ stores. Rowe said its food prices needed to be more competitive in a tough market, while both ranges and availability needed to improve.
The plan is the latest in a long line of turnaround attempts by one of the best known names in UK retail which has lost ground to rivals from H&M and Zara to online site ASOS, whose fast-changing fashions have won over younger shoppers.
Rowe, an M&S lifer who became CEO in April last year, denied the latest changes were a direct result of retail veteran Archie Norman joining as chairman in September, saying they were based on data and financial modeling. M&S had not lost as many customers as expected when stores closed, making quicker and further closures viable, he said.
M&S also said finance chief Helen Weir would leave the firm when a successor was found after less than three years in the role. She said she wanted a “more diverse portfolio” of jobs.
Norman, best known for turning round supermarket chain Asda in the 1990s, told reporters the 133-year old M&S had been “drifting, unfulfilling its customer promise” for 15 years, failing to deliver the pace of change required.
“This is our moment to start doing it,” he said.
“The genesis of any turnaround starts with the recognition of the unvarnished truth – the unsparing statement of where you stand today, where the competition is, what the challenge is ahead,” he said.
Norman praised Rowe for “grasping nettles and slaughtering some sacred cows” over the last 18 months.
Rowe has scaled back M&S’ international operations and cut bureaucracy. His clothing strategy is focused on reduced prices for basic ranges, cutting back on clearance sales and promotions while improving fit, availability and customer service.
His plan also involves switching some UK shop floor space from clothing to food. M&S said last year it would close, downsize or relocate 105 stores over five years. Six have closed so far.
“At this stage the numbers that we’ve given out previously are the minimum numbers we intend to work to. But the key thing is the pace of that change will be quicker than we previously said,” said Rowe.
Norman said that because of Rowe’s actions “we no longer have a hemorrhaging business.”
Rowe said M&S would further modernize its clothing supply chain to make it faster and lower cost. He set a target for a third of its clothing and homeware sales to be made online and plans to substantially cut its cost base.
Shares in M&S, down 6 percent so far this year, were up 1 percent at 1555 GMT, as falls in first half profit and second quarter sales were not as bad as feared.
“M&S is playing catch-up in a difficult mid-market position and pressures in food are unlikely to recede near-term ... the shares are unlikely to perform until evidence of sustainable recovery is seen,” said Investec analyst Kate Calvert.
Its task is being made harder by a squeeze on consumers’ spending power as inflation rises and wage growth falters. Last week UK interest rates also went up for the first time in a decade.
Some believe more radical thinking is required. Last week, Whitman Howard analyst Tony Shiret said the benefits of M&S merging with rival Next (NXT.L) were attractive, though he said it was unlikely to happen.
M&S’ pretax profit fell 5 percent to 219 million pounds ($288 million) in the 26 weeks to Sept. 30. Second-quarter clothing/homeware and food like-for-like sales both fell 0.1 percent.
Rowe said M&S was “quite pleased with the start to Christmas” (trading).
Recent surveys and data, however, show UK retailers had a tough October.
($1 = 0.7603 pounds)
Additional reporting by Sarah Young and Paul Sandle; Editing by Keith Weir and Mark Potter