UK: M&S: another weight off its mind - COMMENT (Members)
Marks & Spencer has sold its US retail chain, Brooks Brothers. Divesting Brook Brothers will help M&S focus on its UK business, which it sorely needs to do as recent performance begins to show early flickers of hope. Yet recently, its executive chairman has hinted at looking for opportunities overseas. This may raise a question over the company's degree of 'focus'.
After eight months on the market, Marks & Spencer (M&S) has finally managed to sell its loss-making retail chain it bought for $750 million in 1988, albeit for only $225 million. Brooks Brothers has been bought by Retail Brand Alliance.
Despite the low price received, this is good news for M&S since its past decline can be put down to an unfocused strategy and arrogance. Now it is creating the first positive steps towards winning back customers. A new executive team, a revamped clothing line and divesture of overseas loss-making businesses have created the first glimmer of hope. After three
dismal years, the company reported operating profits up 9% at the beginning of the month.
M&S must remain focused on its UK operations. Only the food business is doing well at the moment; in other areas it is far behind retail and consumer trends. Divesting overseas units will help it concentrate on its slowly reviving clothing line and developing a stronger UK retail proposition - revamped stores and growth of home and beauty lines.
Yet despite these very recent improvements, executive chairman Luc Vandevelde has already mentioned overseas development in a strategic review earlier this month. It is good to have an eye to the future, but it is far too early to talk of such things - first M&S must get out of the mess it got itself into.
Perhaps the company is drawing confidence from the city, since the M&S share price has been the FTSE 100's best performer, rising by 70% this year. Yet this valuation seems overly optimistic about the firms' future prospects.
M&S has a lot of work still to do, and will not become the dominant clothing retailer it once was in any short space of time, if ever. Talk of overseas development seems a touch foolhardy now. Once it has developed a position of strength in the UK then it can consider expanding overseas again, but not before.
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Companies: Marks and Spencer
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