TOTAL FOCUS ON UK RETAIL
Revitalised strategy for UK Retail:
- Recovery plan for Clothing
- Expansion in growing product areas such as Food, Home and Beauty
- Acceleration of store renewal programme
- More intensive use of space
VALUE REALISATION, AND CLOSURE OF LOSS-MAKING BUSINESSES
- Intention to close Continental European subsidiaries
- Sale of profitable Brooks Brothers and Kings Super Markets in the US
- Franchising of business in Hong Kong
- Intention to close Direct catalogue business in UK
- Release value from almost half the property portfolio
IMPROVED CAPITAL STRUCTURE
- Return £2 billion of cash to shareholders by the end of March 2002
- Total UK Retail sales up by 0.8% in the 9 weeks to 24th March 2001 with like for like sales down by 0.5%
Commenting on these developments Luc Vandevelde, Chairman and Chief Executive, said: “These changes put in place a clear, thorough and urgent plan for recovery based on the UK business. At the heart is a determination to restore an unquestioned reputation with our customers for quality, value, service and innovation. By creating a simpler more focused organisation we will be able to get on with what we do best, to be better positioned to deliver faster recovery and, in time, seize new opportunities both in the UK and abroad. We are confident that both customers and shareholders will benefit as a result.
We recognise these changes will be painful for some of our people. We very much regret this but the decisions have not been taken lightly. They are essential to building a stronger future for Marks & Spencer.”
A presentation to analysts will be held at 10.00 am today.
A presentation to the media will be held at 11.30 am today.
Both presentations will take place at The Lincoln Centre, 18 Lincoln’s Inn Fields, London, WC2A 3ED
For more information please contact:
|Corporate Press Team:||020 7268 1919|
020 7396 3553 (until 1pm)
|Investor Relations:||020 7268 4195/6594|
New Group Strategy and Structure
Following a wide-ranging and detailed strategic review of its business, the Board of Marks & Spencer today announces significant changes to the Group strategy and structure.
The Board and management team is committed to restoring profitable growth. This will be achieved by total focus on the recovery of the UK Retail business.
To eliminate distractions and gain maximum impact from the improvements, Marks & Spencer intends to close its subsidiaries in Continental Europe; to divest its two US businesses, Brooks Brothers and Kings Super Markets; to franchise its subsidiary business in Hong Kong; and to close the Direct catalogue business. In addition Marks & Spencer will release value from almost half its property portfolio.
In order to improve the capital structure of the Company, Marks & Spencer intends to return £2 billion to shareholders by the end of March 2002.
Total Focus on UK Retail
Following a detailed review, the UK retail management team, led by Roger Holmes, has developed an operational plan that will build on the inherent strengths of Marks & Spencer and exploit new growth opportunities.
100% Own Brand: The Company will return to selling only own brand products and brands exclusive to Marks & Spencer so it can guarantee customers the quality, value and service they have come to expect. Central to the recovery plan is the delivery of significant improvements in product appeal, availability and value thereby rebuilding the relationships with core Marks & Spencer customers.
Improved Segmentation of Clothing: Marks & Spencer will concentrate first on regaining the loyalty of core customers, who prefer classically stylish clothes. This is the priority. As part of its plan to segment its products across different lifestyles, the Company has already announced the appointment of George Davies to design and supply a collection of women’s clothing for the fashion-conscious woman. This sub-brand will be available only at Marks & Spencer. Stores will be laid out by lifestyle to give impact to the display of these sub-brands and to add clarity to the offer.
The Company has plans to regain the confidence of its customers in the quality and fit of its clothing. It will sharpen pricing by rebalancing the price architecture, extending the range of entry-price merchandise and communicating this clearly to customers.
A preview catalogue will be launched this summer to increase flexibility in buying, improve availability and reduce product markdowns.
Build on Success in Foods: Marks & Spencer Foods continues to perform well and has earned customers’ trust for providing quality, innovation and convenience. The business is a key platform for future growth and the Company is considering opportunities to expand its reach through new locations and selling channels.
Develop High-Growth Areas of Home & Beauty: The Home business is growing strongly, with home furnishings and gifts the fastest growing product areas. Beauty, albeit relatively small, is also growing rapidly. Both of these areas offer promising opportunities for development and will be expanded.
Accelerate Store Renewal Programme: Marks & Spencer will accelerate the rollout of the successful elements of its new concept format under a plan to refurbish more stores faster and at lower cost. Two-thirds of its retail space (120 stores) will be completed by the end of the coming financial year, benefitting the majority of Marks & Spencer’s customers.
More Intensive Use of Space: Selling space will be reallocated to higher growth product areas to maximise returns per square foot. In total, 600,000 sq ft will be reallocated within the year to areas such as the new Clothing range supplied by George Davies, Home, 50 new Beauty Shops, and 30 new Coffee Shops.
Improve the Supply Chain: The Company continues to see substantial benefits from the reconfiguration of the supply base, being shown in a Clothing primary margin that is rising strongly. The priorities now are to eliminate duplication and increase transparency. By re-establishing closer working relationships with its supply partners, historically a unique strength, Marks & Spencer will achieve further improvements in quality, value, product appeal, and availability.
Plans for the future include developing the Marks & Spencer store card as an essential partner to the growth of retail sales; a stronger presence for Financial Services in stores; continued growth of the credit business; and faster rates of growth of non-credit areas, which may involve bringing in external partners.
Value Realisation, and Closure of Loss-making Businesses
In order to focus all its efforts on the recovery of the UK business, Marks & Spencer intends to divest or close non-core businesses and assets, subject to consultation with its employees.
International: The Company intends to close its loss-making business in Continental Europe, affecting some 3,350 jobs, subject to consultation. It also intends to dispose of its two profitable US businesses, Brooks Brothers and Kings Super Markets. These operations do not provide an appropriate platform for future international expansion by Marks & Spencer.
The Company’s 10 stores in Hong Kong will be sold to become a franchise. Our franchise business, spanning 30 countries and operating with appropriate formats and strong local partners, continues to be successful. The Company’s business in the Republic of Ireland is also growing fast and profitably. Marks & Spencer remains firmly committed to these businesses, recognising the importance longer term of international development.
Direct: Marks & Spencer intends to close its loss-making catalogue business including a dedicated call centre and fulfilment centre. This proposal will be subject to consultation with employees in the Direct operation with about 690 jobs affected. Although the joint Clothing and Home catalogue will be discontinued, Marks & Spencer is committed to maintaining its e-commerce website: www.marksandspencer.com, as well as a Home brochure and a range of services including flower delivery.
Property: To reduce the dilution from the relatively low returns from property investment, Marks & Spencer intends to release value from almost half of its extensive property portfolio. Ownership of stores in prime locations will be retained to maintain maximum operational flexibility as well as capturing future increases in capital value.
Improved Capital Structure
To create a more efficient capital structure and improve the potential for a faster rate of earnings growth Marks & Spencer intends to return £2 billion to shareholders by the end of March 2002. Following the return of cash to shareholders, Marks & Spencer will retain the financial strength and flexibility to fund future growth.
The benefits to trading profit from the closure of the European subsidiaries and the changes to Direct will be about £50m in a full year.
These measures will give rise to exceptional charges in the current year of £250m to £300m, in addition to the £42m already announced at our Interim results for the cost of satellite closures in the UK. Some two thirds of the £250 to £300m will be cash items covering closure costs and future trading losses. Further details will be given at the time of the preliminary results announcement on 22 May 2001.
Impact on People
While recognising the imperative to streamline Group operations, the Board understands and regrets the painful effect this will have on the people involved. In keeping with the Company’s principles, it is committed to consult fully wherever restructuring takes place, with redeployment as the preferred option where possible.
The total number of roles directly affected by the changes announced today are estimated to be as follows:
|Business Area||Potential Reduction in Roles|
*Includes 200 related to International and Direct and 150 likely to result from other reviews currently underway.
UK: Sales (inc VAT)
Sales performance for 9-weeks and 51-weeks to 24th March is given below.
Like-for-like sales are shown in brackets and have been estimated by comparing total sales, with new and developed stores excluded.
|9-weeks to 24th March 2001|
% on Last Year
|51-weeks to 24th March 2001|
% on Last Year
|Clothing, Footwear and Gifts||-6.5||-5.4|
*The effect of Mothers Day this year (against no Mothers Day in the comparable period last year) has been to add 1.2% to the aggregate sales percentage change for the 9 week period.
International: Sales (in local currencies), including franchises
International sales performance for 9-weeks and 51-weeks to 24th March is given below.
|9-weeks to 24th March 2001|
% on Last Year
|51-weeks to 24th March 2001|
% on Last Year
|Europe (excl UK)||-0.1||+3.5|