Retailer Marks & Spencer has announced that it plans to close down all its wholly-owned stores in ten international markets, including Hungary, Poland, Romania and Slovakia, following continuous losses incurred on these markets.
The decision came after the retailer registered a loss of £45 million last year in the ten markets, some of which have been loss-making for at least five years. Marks & Spencer announced on November 8 it posted an 18.6 percent fall in underlying profits before tax to £284 million, while statutory profit before tax plunged 88.4 percent to £216 million in the six months ending on October 1. The group’s revenue inched up 0.9 percent to £4.9 billion in the period under review.
“We are proposing to close all of our 53 wholly-owned stores in these ten markets, including ten in China and seven in France, as well as all of our stores in Belgium, Estonia, Hungary, Lithuania, the Netherlands, Poland, Romania and Slovakia,” the company said in a statement. “We are therefore today starting consultation with c.2,100 employees about our proposals,” it added.
Following the shutdown, the retailer estimates it will incur non-underlying costs in the range of £150 million to £200 million, of which the vast majority will be cash, largely driven by property-related costs and redundancy costs.
The retailer said the loss incurred in the ten markets is the result of a number of factors including a fragmented owned-store portfolio and lack of scale. In addition, the British retailer says it sees limited opportunity for future growth in these markets.
The disappointing results in most of the Southeast and Central European countries where it plans to operate shutdowns is at odds with the rising trend in retail sales in these countries. In Romania, for example, retail sales have been growing at double digit rates since since September last year, backed by increasing disposable income of the population. Growth slowed down in September, but was still at a robust to 9.7 percent.
However, the British retailer failed to become profitable on the market. “Our analysis has shown that in the past five years we have found it difficult to reach a profitable rate and we can no longer continue our activity in Romania,” Jonathan Glenister, manager for Europe, China and India said, according to Ziarul Financiar.
In Romania, Marks and Spencer owns six stores, four of them in the country’s capital Bucharest. In Slovakia, it owns seven stores, in Hungary six, and in Poland 12.
Marks and Spencer will continue to operate its profitable international businesses and focus on a franchise model.
“We will continue to operate owned businesses in the Republic of Ireland, Hong Kong and Czech Republic, which are profitable with strong brand awareness, established store estates and loyal customers,” Marks & Spencer said. It operates 19 stores in the Czech Republic.
Marks & Spencer’s international business consists of two parts: an owned business that is loss making in some markets, and a profitable franchise business which made a profit of £87.3 million last year. It has 267 franchise stores in 34 markets, as well as established joint ventures in Greece and India.
Apart from restructuring its international business, the British retailer will also close down 30 UK stores and downsize or replace around 45 full line stores with Simply Food stores.