British clothing, home furnishings and food retailer M&S has announced plans to close another 85 full-line merchandise stores amid a 9.9% drop in full-year profits.
In the year ended March 30, 2019, the group’s pre-tax profit (not adjusted for special items) fell from £589 million to £523.2 million (approximately ($663.1 million) fell 11%, which the company attributed to poor sales and charges from closing physical stores.
Affected by the closure of physical stores, sales of clothing and home furnishings in the UK fell by 3.6% year-on-year, and revenue fell by 1.6% year-on-year. However, gross margin increased 20 basis points due to a 14% decline in inventory.
Insufficient supply in the fourth quarter has limited sales progress in the third quarter. The company reported rapid sales and encountered supply problems due to sales.
During this period, the group’s revenue fell by 3% to 10.4 billion pounds. Due to losses, it closed physical stores and exited the market. In addition, in December 2017, the Hong Kong business was sold to Franchise partners, which led to a 13.4% decline in international revenue on a constant currency basis. Excluding Hong Kong and exit markets, its revenue grew 1.1%.
At the same time, M&S said it was making good progress in solving previous problems faced by the industry: too broad a range and misjudgment of customer shopping preferences. While it has revamped its options to introduce slimmer fits and more mid-sizes, to which customers have responded extremely well, it has faced some issues, including a slow supply chain, which has ultimately led to declining sales. The company said: “Building a new range structure in a business with weak processes, slow supply chains and where buyers are building confidence has proven challenging, and our sales in stores and online have been affected by fourth quarter merchandise supply.” Frustrated by lack of goods.
While we have made good progress in reducing overall inventory levels, many popular product lines have sold out prematurely due to a failure to increase purchasing depth and slow inventory flow. , causing inventory turnover to drop for nearly three weeks and sales to drop by 14%.
But the group said customer response to the initial changes had been “encouraging” despite “visible issues”.
The sales of its new denim products increased by 20% at the beginning, and the sales of GBP15 women’s products increased by 30% during the event. .
However, the group hopes to strengthen its online store business. Revenue from clothing and household products increased by 9.8% year-on-year, increasing its online store clothing market share by 0.3 percentage points.
Chief executive Steve Rowe said: We are well into the first phase of our transformation plan and continue to make good progress in restoring our fundamentals and addressing the many legacy issues we face, as I As said, at this stage, we are self-evaluating through changes and transaction results, and the group’s changes will accelerate in the next year.
Although there is some recovery, our delivery dates are not consistent in various business areas. The pace of change at M&S is faster than at any time in my career, with changes across the business related to our processes, our scope and our operations. Performance has been constrained this year, particularly in apparel and homewares. But we remain on track with our transformation and are now working hard to make M&S even more special again.
Physical store closures
Looking ahead, M&S issued a statement, except In addition to the 35 full range stores closed in the 2018/19 financial year, a further 85 full range stores and approximately 25 Simply Food stores are currently expected to close.
M&S said: The company’s strategy is not only reasonable streamlining, repositioning and new openings, but closing stores is also a means. So we expect our store base to remain flat.
M&S announced in January that it planned to close a further 17 stores and cut more than 1,000 jobs as part of a review of its portfolio. Return the group to profitability. The fashion giant has plans to close 100 stores by 2022.
At the same time, M&S said that it expects to significantly reduce duplication of options and ranges, add more than 1 million pounds of product lines in autumn, significantly increase the size ratio, and further focus on style and fashion. and additional value investments. This will be strengthened by updating the sub-brand strategy, including the relaunch of the PerhUna range, where initial customer response to early changes has been positive.
With the new series structure, we will strive to upgrade to a “price first, affordable price” trading concept and further reduce clothing and home furnishings sold at discount prices ratio of supplies, because this ratio is obviously too high.
The group also said it has reduced the complexity of its logistics network and is in the early stages of modernizing its supply chain network, technology and processes, which is a priority.
2019/20 Outlook
M&S said that the group is still in transformation This is a difficult stage for planning, and while trading is expected to improve in every major business over the next year, any progress is likely to come in the second half of the year.
In apparel and homewares, online store closures are expected to reduce sales by 0.3%, while gross margins are expected to be -25bps to +25bps.
Thomas Brereton, retail analyst at GlobalData, said that despite the poor sales data, “there are signs that M&S intends to maintain the two divisions as the main operations in the long term.”
Although 26 physical stores of the full range of goods were closed throughout the year, sales performance of clothing and household goods, like food, did not improve much. However, supported by online sales growth of 9.8%, C&H l-f-l sales only fell by 1.6%, indicating that the integration was broken. and confusing purchasing processes, M&S simultaneously narrowed its scope.
Given M&S’s important position in the UK retail industry, its focus will continue to accelerate the expansion of physical stores for at least next year. Closures and M&S’s contribution to the retail apocalypse, with a further 85 full range and 25 Simply Food stores expected to close next year, the focus remains on becoming a “digital” retailer, with the Sparks loyalty scheme set to be restructured as an example .
But for investors, M&S’s possible exit from the FTSE100 (London Financial Times 100 Index) provides a warning for brick-and-mortar retail that fails to adapt to the changing consumer environment. Companies with changing needs will not be able to survive in a more flexible market context.
Retail Economics CEO Richard Lim admitted that despite the concurrent political and economic turmoil, This is just a major shift in the structure of the retail transaction environment that is being reshaped. Marketplace businesses continue to contend with a rapidly changing consumer environment, and competition is working to shift businesses towards more sustainable propositions that put digital and experience at the core.
In this increasingly competitive and dynamic market, this proposition still does not exist. If we are to survive in these unprecedented times, transformation needs to happen quickly, including reducing the number of stores , repurposing space, reducing headcount, and striving to leverage partnerships effectively.
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