New GrpStrategy/TradingUpdate
Marks & Spencer PLC
29 March 2001
m press release
29 March 2001
MARKS & SPENCER LAUNCHES NEW GROUP STRATEGY AND STRUCTURE
TO ACCELERATE RECOVERY
HIGHLIGHTS
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
TRADING UPDATE
* 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.'
2.../
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
3.../
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.
4.../
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,
benefiting 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.
Financial Services
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.
5.../
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.
6.../
Financial Impact
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
Continental Europe 3350
Direct 690
Head Office 350*
TOTAL 4390
*Includes 200 related to International and Direct and 150 likely to result
from other reviews currently underway.
7.../
Trading Update
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 51-weeks to
24th March 2001 24th March 2001
% on Last Year % on Last Year
Clothing, Footwear and Gifts -6.5 -5.4
Home Furnishings +9.1 +10.9
General -5.0 (-6.6) -4.2 (-6.3)
Food +8.0 (+7.1) +3.6 (+2.5)
Total +0.8* (-0.5) -1.0 (-2.6)
*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.
8.../
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 51-weeks to
24th March 2001 24th March 2001
% on Last Year % on Last Year
Europe (excl UK) -0.1 +3.5
The Americas:
Brooks Brothers inc Japan
Kings Super Markets -1.0 +5.1
+5.3 +6.1
Far East +3.0 +4.3
Total _____ _____
+1.2 +4.6
____ _____
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