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M&S forced to rethink restructuring plan as sales and profits slump for third straight year

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Fightback: M&S widens full-line store closures, keeps bigger food stores and joins with Ocado
Fightback: M&S widens full-line store closures, keeps bigger food stores and joins with Ocado
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M&S sales and profits drop again as plan to go digital faces rethink – is it the next Debenhams?

M&S has been forced to rethink its restructuring plans as market share, sales and profits all take a hit – with many now seeing it as ‘the next Debenhams’ unless it works out just what it wants to be and for whom.

 

Results for the year to 30 March show underlying pre-tax profits – widely seen as a measure of profitability from a retailer’s day-to-day trading– fell by 10% to £523.2 million. It also reported like-for-like sales at its food stores dropping by 2.3% across the 12 months.

 

Even factoring in the late Easter, the fall is still a significant 1.5%.

 

Clothing and home sales were 1.6% lower, with its troubled womenswear declining by 1.6% amid stock troubles. Total revenue was 3.6% lower, hit by the impact of those store closures that form such a crucial part of the retailers plan to become a “digital first business with a strong store presence”.

 

In light of the results, the retailer has amended its restructuring plan, telling shareholders this week that it would be closing 120 full-line stores by 2023 – as opposed to the original 100 earmarked for closure by 2022.

 

In addition it has also announced that 25 smaller food sites would go in favour of 75 larger food halls and said that, once completed, store numbers across the UK would be broadly flat as it exits old sites, many of them occupied since the 1940s.

 

On the digital front, M&S also announced that it had wonshareholder agreement on a deal with Ocadoto deliver groceries in the UK.

 

Commenting on the company’s performance, chief executive Steve Rowe says: "Whilst there are green shoots, we have not been consistent in our delivery in a number of areas of the business. M&S is changing faster than at any time in my career - substantial changes across the business to our processes, ranges and operations - and this has constrained this year’s performance, particularly in clothing and home.”

 

Rowe continues: "However, we remain on track with our transformation and are now well on the road to making M&S special again."

 

Despite board-level positivity, M&S is in a precarious position. For starters, it teeters on the brink of falling out of the FTSE 100 for the first time. It is also attracting the kind of attention seen circling Debenhams before its collapse.

 

According to Angus Burrell, General Manager UK, Omni-channel solutions, Valitor: "Once the darling of the UK high street, M&S’s latest results have alarming similarities to Debenhams. If big changes aren’t made quickly, it could suffer the same fate. This doesn’t mean simply closing stores to cut costs and help drive people online. M&S needs to reassess what it stands for and use its heritage and 135 year history as a way to stand out. M&S was once famous for its honesty, human touch and unrivalled 90 days returns policy, but this has been lost, which is a huge mistake in today’s retail environment. If it can get back to its roots to once again put customer service at the centre of the brand experience, M&S can regain the reputation for being a retailer that cares for its customers and gives them what they want. It’s a simple proposition but one that many retailers struggle to deliver on.”

 

The problem, many believe, is that traditional retailers such as M&S and those that have already closed is that they are struggling to understand what they represent to retailers and how to make that fit with the modern retailing paradigm. Simply being digital isn’t enough, it requires translating their old DNA into the modern world.

 

William Hall, Strategy Director at global branding and design agency, Landor, explains: “When you no longer win on price, convenience, quality or experience, consumers no longer have a reason to buy from you. But that’s the position M&S finds itself in. As it closes stores to move away from high street ubiquity, its market share has taken a nose dive.

 

“Price and quality wise, we know that M&S has always positioned itself at the premium end of the scale, competing with the likes of Waitrose. However, the huge success of Aldi has challenged the notion that you have to pay premium prices to get premium grocery products. Regarding its convenience conundrum, the recently-announced deal with Ocado could offer some hope for a brand that has famously stood back from home delivery groceries.

 

“However, as buying habits continue to change, today’s results should be seen not as a challenge, but an opportunity. M&S now has a unique chance to explore where they have permission to grow their offer and audience; but to do so, they need to understand where their brand DNA of trusted quality can take them in the future.”

 

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