The Strategist

Weak sales drive Marks and Spencer clothes out of business

11/08/2016 - 13:35

British retail chain Marks & Spencer announced plans to close 30 stores in the UK, and other 53 - abroad. This decision is associated with attempts to restore position of the company, which share price fell by 22%, and operating profit was down by 18.6%. New head of M&S Steve Rowe noted that the retailer plans to focus on food sector, rather than on the problematic divisions of clothing and household goods.

British retailer Marks & Spencer has announced closure of all brand stores in Belgium, Hungary, Estonia, Lithuania, the Netherlands, Poland, Romania and Slovakia. In addition, the company is planning to axe a number of outlets in China and France. 

This step is associated with fall in trading profit from the clothing brand. In April – September, net profit of Marks & Spencer stores for clothing and household goods declined by 19 per cent. At the same time, the company’s grocery stores have shown better dynamics, due to which newly appointed head of Marks & Spencer, Steve Rowe, announced plans to reduce retail space rendered for non-food items.

30 stores will be shut up in the UK, and clothing departments will be closed in other 45 units in Britain. The company will also axe 10 stores in France and seven - in China. Apart from that, the clothing brand is leaving Belgium, Hungary, Estonia, Lithuania, the Netherlands, Poland, Romania and Slovakia. Winding-up and layoff will cost 170-225 million euros in total.

Marks & Spencer is a British retailer and manufacturer of apparel. The company owns more than 885 stores, of which 600 are located in the UK, and the rest 225 - in 40 other countries.

Sale of food currently account for more than half the company's revenue and about a third of total profit. At the same time, sales of clothing and household goods fell by 2.9%. In the first quarter, this figure decreased by 8.9%, which was the biggest drop in 10 years. 

British stores will suffer the most, and it’s not surprising. Number of clothing shops in the UK is being shrinking faster than other kind of stores. Retailers are suffering from falling sales, lower consumer confidence and customer churn in the online sector. According to PwC, more than 2,600 stores of various kind was closed in the first half of 2016 in the UK. Number of newly opened shops also decreased, so that the number decreased by 503 for a whole half-year, and this is the most significant drop since 2012.

Retailers indicate that a trend, which used to force customers to regularly update their wardrobes, is not working anymore. The millennial generation prefer to save money for experiences - traveling or restaurants, analysts say.

Over half of the year, number of British shops selling men's and women's clothing fell by 95. Stores, which sold jewelry and accessories along with clothes, experienced a similar downsizing (minus 87 units). Banks, mobile phone outlets and recruitment agencies are experiencing hard times, too.

This year, sales of clothing in the UK fell for the first time in 20 years. Marks & Spencer, which occupies 10% of the market, in July reported a biggest quarterly drop in sales in more than 10 years, and announced layoffs. 

PwC analysts predict that the situation will only worsen. Many stores are planning to increase prices in the coming months to compensate for losses from devaluation of the pound sterling.