Prices cut as part of new CEO's plans
M&S to review stores and clothing amid profits alert
Marks & Spencer’s new boss Steve Rowe today announced a shake-up of the business, confirming that it will be reviewing its stores portfolio, while the range of brands will be reduced and the number of sales and promotions slashed.
The chain has more outlets than any of its high street rivals and its UK store estate will be among a number of “strategic questions” that will be addressed.
Mr Rowe has conducted a “forensic review” of the business in the last six weeks and will present an update in the Autumn.
The company will cut the number of promotions and sales and strip back the number of brands while improving the availability of products.
With food continuing to outperform the market, the company is accelerating its roll-out of Simple Food stores with 100 more to open in each of the next two years.
In its first results since Mr Rowe took over as chief executive from Marc Bolland the company announced that group underlying profit before tax was £684.1m, up 3.5% on last year (53 weeks: £689.6m, up 4.3%).
Profit before tax was £483.3m, down 19.5% (53 weeks: £488.8m, down 18.5%). The fall in pre-tax profits was a result of a one-off charge related to its international business.
Food was again the star performer, up 0.2% on a like-for-like basis, while clothing and home furnishings slumped 2.9%.
The company proposes a final dividend of 11.9p resulting in a full year dividend of 18.7p, up 3.9% on last year.
Mr Rowe said the changes needed will have an impact on profits in the short term.
“Our results last year were mixed,” he said. “We continued to outperform on food but we under-performed on clothing & home sales. This is not satisfactory and today we are outlining our initial plans to address the issues and to position Marks & Spencer to deliver profitable sales growth.
“We are clear on the actions needed to recover and grow clothing & home, which is our top priority; to continue to grow our food business; and to focus on driving profitability. We are investing to re-establish our price position by sharpening prices and to enhance service by putting more employees into our stores.
“These actions, combined with the difficult trading conditions, will have an adverse effect on profit in the short term. We are, however, confident that our commitment to delivering the right product, price and service will help return clothing & home sales to growth. This, together with continued momentum in food, will provide us with a solid base from which to build a long term sustainable business.”
The company said the changes are the “first phase of a strategic plan to recover and grow clothing & home and continue to grow food”
It said it is reviewing the cost base with the objective of delivering the first benefits this year. The final salary pension scheme, which has been closed to new entrants since 2002, will be closed to all employees.
In its statement it said: “There are a number of other strategic questions which need further consideration, including those relating to our international business, our UK store estate and our organisation, and we will update on these in the autumn.”
The company outperformed the market by four percentage points and its share rose to 4.3%.
Product innovation continues to be a key driver of performance as customers seek new flavours and unique products.
“This year we introduced 1,700 new products, equivalent to almost a quarter of our entire range, including new cuisines within the Taste range such as Greek, Lebanese and Spanish prepared meals as well as redeveloping and expanding popular Italian ranges.
Customer trends continue to evolve with more frequent and more local shopping trips growing in popularity. It said Simply Food stores are well positioned to benefit from this trend and the performance of new stores has been above expectations. The focus has been on refining customer choice by making sure that each store’s range is appropriate to not only its location and size but more importantly the customer shopping mission.
The company said trading conditions through the year remained challenging, with unseasonal weather, particularly in the autumn, resulting in high levels of promotional activity. However, M&S under-performed the market and lost market share over the year.
A new team was appointed in September 2015 who took immediate action to address performance.
“We changed the structure within our Clothing & Home business, to better align it to how our customers shop, combining our womenswear, lingerie and beauty business units, and we reshaped how we buy product, by product category rather than sub-brand.
“In the final quarter, we started to take action on sharpening up price points, reducing prices of some 300 core products. We also focused on improving availability, resulting in improvement in the Spring/Summer 16 launch availability of 20%.”
M&S.com sales were up 23.4% year on year, growing ahead of the market and increasing share to become the second largest online UK clothing retailer. It now has 7.4m customers shopping online, the highest ever number.
Mobile continues to be the fastest growing sales channel.
During the second half of the year the company launched Sparks, its new membership club which combines tailored offers and personalised benefits for customers. Over 4m customers have signed up.
Photos: by Terry Murden (copyright)