Marks & Spencer has reported a sharp fall in annual profits as it revealed a deterioration in clothing sales and huge store closure costs.
Pretax profits at the retail giant slumped 62% to £66.8m after a £514.1m bill for restructuring costs that included £321m to pay for the first phase of its store closure plan.
One in three of its core clothing and home stores is scheduled to disappear from the high street within four years and the group warned there would be a further £150m of closure costs to come.
Which Marks & Spencer stores are set close?
Stores that will close or are proposed for closure in 2018-19
Bayswater (Simply Food), London
Clacton-on-Sea, Essex
Darlington, County Durham
East Kilbride, Scotland
Falkirk, Scotland
Fleetwood (outlet), Lancashire
Holloway Road, north London
Kettering, Northamptonshire
Newton Abbot (outlet), Devon
Newmarket, Suffolk
New Mersey Speke, Merseyside
Northampton, east Midlands
Stockton, County Durham
Walsall, West Midlands
Clothing and home stores that have already closed
Andover, Hampshire
Basildon, Essex
Birkenhead, Cheshire
Bournemouth, Dorset
Bridlington, Yorkshire
Covent Garden, London
Denton (outlet), Greater Manchester
Dover, Kent
Durham, County Durham
Fareham, Hampshire
Fforestfach, Swansea
Keighley, Yorkshire
Portsmouth, Hampshire
Putney, London
Redditch, Worcestershire
Slough, Berkshire
Stockport, Greater Manchester
Warrington, Cheshire
Wokingham, Berkshire
Greenock (relocation), Scotland
Newry (relocation), Northern Ireland
Crewe (relocation), Cheshire
Also closed
Barton Square Home – a satellite to the Trafford Centre store in Manchester Llandudno – a satellite to main store
Downsized
Solihull
Pudsey
Bath
The M&S chief executive, Steve Rowe, said major structural changes were having an impact on the 134-year-old retailer as sales transferred to the internet and no-frills chains such as Primark, Aldi and Lidl. On Tuesday the retailer said it would close 100 of its 300 high street stores, which sell clothing, homewares and food, by 2022.
“These developments, together with a challenging UK consumer market, mean that we have to modernise our business to ensure we are competitive and reignite our culture,” Rowe said. “Accelerated change is the only option.”
M&S expects a third of its £3.7bn clothing and homewares business to move online over the next five years. But Rowe admitted neither the website, which had a £150m revamp four years ago, or the hi-tech warehouse built in Castle Donington, Leicestershire, to support it were up to the job and more investment was now needed.
“Although our online sales are growing, our online capability is behind the best of our competitors and our website is too slow,” said Rowe, admitting that product pages took too long to load and the search function was not good enough. “Our fulfilment centre at Castle Donington has struggled to cope with peak demand and some of our systems are dated.”
M&S said clothing sales in stores that have been open more than one year tumbled 3.4% in the fourth quarter as trading was hit by the “beast from the east” cold snap. That compared with a decline of 2.3% in the previous period. Sales in its food halls also went backwards, with underlying sales down 0.6% in the three months to 31 March as it was outflanked in a competitive convenience store market.
The state of UK retail’s ill-health
Retailers that have gone bust 2017-18
Toys R Us: 180 stores employing 3,000 staff, collapsed 28 February. Owes £15m in VAT, due by 1 March.
Maplin: 200 electronics and gadget stores, founded 1972, also failed on 28 February.
Warren Evans: bedmaker went into administration earlier in February.
East: fashion brand with nearly 50 outlets folded in January.
Juice Corp: business behind brands including Elizabeth Emanuel and Joe Bloggs went under in January.
Multiyork: furniture chain with 50 stores went into administration in November.
Feather & Black: bedroom furniture and bedding specialist with 25 outlets fell into administration in November.
Retailers under pressure
New Look has debts of more than £1bn and has lost some of its credit insurance cover, which protects suppliers if a retailer goes bust. In the 10 months to Christmas, sales fell 11% and losses hit £123m. The company intends to close 60 stores and change its fashion ranges, but faces a struggle to win back young shoppers.
House of Fraser‘s Chinese owner, Sanpower, had to stump up £25m to see the store through Christmas and its debt is rated as junk. The retailer is attempting to reduce the size of its stores by 30% and has asked landlords to cut rents.
Debenhams, a 178-store chain that is more than 200 years old, is axing one in four of its managers and considering closures to cut costs. It has warned that profits have been hit by lower than expected sales, with profit margins also down as a result of having to cut prices to match rivals.
Rowe said the food business had underperformed during the quarter as gaps on shelves were compounded by stiff price competition. He said its food halls needed to offer better value for money and to attract more families.
Rowe, who has been in charge for two years, did not rule out additional store closures. “This is a catch up programme … We have got too many legacy stores and historically have not closed stores fast enough. We need to make sure we’ve got an estate that is fit for the future.”
Shore Capital analyst Clive Black said M&S had started to make decisions that had been put off for too long: “The frustration for long-only investors is that M&S has been in perpetual transition but there remains the need for more patience to come.”
