Another glorious week for British retailers, eh?
We have had the complete farce this week that was Sports Direct allegedly attempting to Inspector Clouseau-style spy on MPs who visited its Shirebrook complex in Derbyshire. Tesco is still grappling with the cyber attack on Tesco Bank customers’ accounts, while American Apparel’s UK business has fallen into administration.
Not to mention that the BHS saga, which has truly tarnished the retail sector, has kicked up a notch again with the pensions regulator issuing warning notices to Sir Philip Green and Dominic Chappell.
In what is proving to be an annus horribilis for British retail, it is hard to focus on what is actually going on in the industry among the many scandals and dramas.
However, the industry news that did get everyone talking this week was Marks & Spencer’s half-year results.
Amid plunging first-half profits (down by more than 80% on a statutory basis), Steve Rowe, the new-ish chief executive with an enormous job ahead of him, has unveiled his strategy for turning around the high street retailer.
With the confidence of many of his predecessors before him, from Sir Stuart Rose to Marc Bolland, Rowe was keen to assure the City that after several missteps, M&S was now finally on the right track.
As is ever the case with M&S, that remains to be seen but a key part to the chain’s grand five-year turnaround lies in its property strategy.
Rowe plans to fiddle around with its UK store estate, shutting 30 “full-line” stores and downsizing or converting 45 more into Simply Food shops. About 100 locations across the UK will be affected and Rowe hopes that in five years’ time, M&S will have 10% less space devoted to food and clothing, and a lower average lease length across its portfolio.
On the face of things, and after deciphering sometimes government-esque levels of obfuscation in the M&S results, this seems pretty bold stuff.
Many a town in Britain defines itself by the presence of an M&S store on its high street and when Rowe finally reveals the hit list of proposed store closures, I am sure he will not be popular in many towns.
However, has he gone far enough? No one (and I include M&S management in that) seems to think that a 10% reduction in general merchandise space over five years is nearly enough, although it is a start.
Closing stores is costly and the restructuring costs will be £350m over five years.
And this is before we even consider the dramatic restructuring and scaling back of M&S’s international operations, although Rowe was at pains this week to stress that the chain was not “retreating” but merely focusing on its profitable owned stores and its franchise business. A classic rose-tinted, management-speak spin on a plan that involves shutting 53 stores in 10 markets with the potential loss of 2,100 jobs and restructuring costs that could be as much as £200m over the next 12 months.
M&S’s forays into most new countries have routinely been loss-making and disappointing and, in the case of France – where the world’s retail sector will be congregating next week for MAPIC – it has been downright embarrassing. M&S has entered the Gallic market twice and failed both times.
The property restructuring is only part of Rowe’s grand plan, with the rest revolving around initiatives to sort out its long-ailing clothing sector. The retailer said this week it would cut out “brands” such as Indigo to focus on its core brands such as Per Una.
And Rowe is working hard. In the six months since he snaffled the top job, he has been so busy trying to right the retailer’s past wrongs that he has quickly racked up more than £700m of restructuring costs that will be spread out over the next five years.
M&S is no BHS and Rowe is a seasoned retailer who knows his stuff. But this is also a business where investors have grown tired of a long line of chief executives promising reform and failing to deliver. Mr Rowe may find he only has a short window of opportunity to prove his case.
