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British retailer M&S hit by latest reinvention

Reuters  |  LONDON 

By James Davey

LONDON (Reuters) - suffered a drop in first-half sales and warned of an increasingly tough trading environment after disruption from the latest attempt to reinvent Britain's most hit both its and clothing businesses.

After more than a decade of failed turnaround programmes, the 134-year-old retailer is now targeting sustainable, profitable growth in three to five years by shutting some of its less-successful stores and warned that sales were unlikely to improve soon.

"Trading conditions remain challenging and the headwinds from the growth of and the march of the discounters remain strong in all our markets," it said on Wednesday.

Shares in M&S, which have fallen 4 percent this year, were down 4 percent at almost 291 pence by 1050 GMT.

M&S's latest turnaround plan was launched last November, two months after veteran joined as to work alongside Steve Rowe, a company lifer who has been since 2016.

Like other established retailers, is trying to deal with the shift of clothing along with unrelenting price competition from supermarkets and discounters.

Pressure on consumer spending, a shift in expenditure towards experiences and away from clothing, as well as unhelpful weather have also hampered revival efforts.

WEAKNESS

Wednesday's results showed M&S's previously reliable business was particularly weak, with like-for-like sales down 2.9 percent, below expectations of a 2 percent fall. Sales numbers were hurt by the need for price cuts in a brutally competitive market, with the division's gross margin falling by 25 basis points.

Sales in the clothing and home division -- long Britain's first port of call for school uniforms, interview suits and underwear -- fell by 1.1 percent on an underlying basis while its gross margin was down 20 basis points.

"Against the background of profound structural change in our industry, we are leaving no stone unturned and reshaping our business, its organisation and culture," said Rowe.

"We are judging our progress as much by the pace of change at this stage as we are by the commercial numbers."

However, some analysts question whether the magnitude of M&S's plan will prove sufficient given how quickly the UK market is changing.

"It is also difficult to adequately invest behind, and prepare for peak (Christmas) trading when both businesses are deteriorating at an increasingly worse rate," said analysts at Liberum.

maintained its full-year outlook and interim dividend, however, after cost savings helped underlying profit to rise by 2 percent to 223.5 million pounds ($293 million) in the six months to Sept. 29, ahead of analysts' average forecast of 203 million pounds.

Illustrating the extent of the retailer's decline, first-half profit in 2007 was 452 million pounds.

said the food business looked particularly jaded.

has traditionally attracted more affluent shoppers who pick up food and wine on their way home. Khalaf said that approach was now facing new competition from such as Hello Fresh, and

"These providers present a particular threat to M&S, seeing as many of its customers are buying a quick meal for that night, rather than a full weekly shop," he said.

STORE CLOSURES

M&S's latest plan is a five-year programme of store closures and relocations to cut excess selling space in its clothing business, plus increased and moves to make the misfiring food business more competitive.

It is targeting 100 British store closures by 2022 as it strives to make at least a third of clothing and It said it could close even more as it manages its property estate more pro-actively. There have been 29 store closures so far.

Rowe dismissed the suggestion that there was tension between him and Norman, a hands-on who is most famous for his revival of in the 1990s.

"The relationship we've got and the way we're working is first class," he said.

($1 = 0.7622 pounds)

(Reporting by James Davey; Editing by Alexander Smith, Keith Weir and David Goodman)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, November 07 2018. 16:31 IST
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