M&S China stores to close
M&S China is to close all 10 of its stores as its UK parent organisation attempts to stem mounting losses.
The Mainland China exit follows the closure of five stores last year and are among 113 to be closed worldwide. M&S CEO Steve Rowe says the department store will exit 10 offshore markets – mostly in Europe – and focus in future on working with franchise partners, as it does in Singapore, Vietnam and the Middle East, for example.
Sixty UK clothing and home stores will be shuttered and 53 stores overseas, in markets including China, France, Belgium, Hungary, Estonia and Lithuania.
Jack Chuang, partner, Greater China, with OC&C Strategy Consultants, says a lack of localisation may be at least in part to blame for M&S China failing to work.
“Using China as an example, they seem not able to adapt themselves to the market fast enough. For assortment, they could have further tailored the apparel products to Chinese body shapes and style preferences. They could have considered adjusting their store format and size in order to capture good locations in malls, which is now the preferred shopping channel by Chinese consumers. Overall, we believe that “localisation” is key to unlocking international markets.”
Refurbishments, reformatting in UK
Back home it will refurbish more than 100 stores, cull underperforming clothing brands, convert some department stores into Simply Food outlets and reduce some of the floorspace committed to apparel into expanded food retail space. Some 2100 jobs will be cut.
The radical restructure follows a slump of nearly 90 per cent in bottom-line profits to just £25.1 million in its half-year to October 1. Sales fell from 8.9 per cent in the first quarter to 2.9 per cent – the worst result in a decade.
Longer term, M&S plans to open 200 more Simply Foods outlets across the UK, by 2019, claiming that after the reform is complete, the company will actually have a net gain of retail outlets.
“Internationally, we propose to cease trading in 10 loss-making owned markets, but intend to continue to develop our presence through our strong franchise partners,” said 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.”
Reform “essential” says analyst
Honor Strachan, lead analyst with Verdict Retail, says the M&S reforms are essential to allow the company to focus attention and investment on fewer stores, ensure consistency across the store network and create a more modern and relevant shopping environment. And he is calling for even more closures.
“With around 240 full line department stores remaining, this is still a huge chunk of real estate to improve, with many stores requiring full overhauls. As online penetration continues to rise, M&S must consider further closures, with few modern day non-food retailers requiring such extensive space.”
Strachan says Rowe’s update seems to be missing a vital element which continues to plague M&S: “Who is it targeting and where does it want to position itself in the UK clothing market?
“Removing just three [apparel] sub brands does not seem drastic enough to allow it to more effectively target a clear consumer segment. Though it has tried to remove shopper confusion about which brands they should shop by displaying clothing in product categories, as well as making steps towards improving availability and slimming down options, these actions seem like band aids for its core issue of not understanding which segment of the market to go after.”
Strachan says that ultimately, M&S’s future performance lies on the success of its product offer.
“Its food proposition is best in class for the segment of the market it operates in, ensuring differentiation and go-to appeal, resulting in market share gains. This strategy has yet to be replicated in non-food, but at this late stage M&S should be willing to take a risk to slim down its offer and target a smaller shopper group with relevant and desirable clothing which is differentiated.”