Marks and Spencer is half manner by a pricey plan to modernise its shops by 2028. The eventual invoice can be greater than £1bn, however the 138-year-old chain insists the technique is beginning to repay.
The shake-up of its property is a key plank within the turnround of the group because it adapts to the digital world and grapples with an increase in prices in opposition to a difficult financial backdrop. This month, it vowed to hurry it up.
Changes to the excessive avenue accelerated by the pandemic and its personal efforts to relocate and refit branches have been beginning to have an actual affect, stated Sacha Berendji, who as group property, retailer growth and IT director is in control of overhauling the retailer’s various portfolio.
“There’s opportunity in the market,” Berendji advised the Financial Times, with the collapse of rivals akin to Debenhams releasing up house and landlords changing into extra amenable to decreasing rents, amending phrases or ending leases altogether prior to now two years.
M&S, which presently has 247 full-line shops promoting clothes, homeware and meals, factors to important enhancements in gross sales and earnings at shops which have relocated. At a latest investor presentation, it cited a 30 per cent rise in clothes gross sales and a 75 per cent enhance in meals because it shut a retailer within the centre of Welsh city Llandudno and opened a brand new one on a retail park.
The late Rick Greenbury, govt chair of M&S within the Nineties, noticed that out-of-town shops have been extra cost-efficient, simpler to run, allowed for wider ranges and attracted extra prosperous clients.
He poured cash into them, however starved some smaller shops of funding in a bid to hit a £1bn revenue goal. That lengthy tail of uncared for and fewer environment friendly house is now Berendji’s drawback.
Tackling it started in earnest when Steve Rowe turned chief govt in 2016 and launched a programme of “rotation” — transferring into greater and higher shops because it shuttered others, citing the best way rival Next modified its retailer property repeatedly.
The trend retailer has 63 fewer shops as we speak than it had in 2013, however virtually 1.3mn extra sq. toes of house because it has moved into extra out-of-town items.
Rowe’s successor, Stuart Machin, advised traders this month that he needed to speed up M&S’s overhaul of its property, in search of to finish it by 2026. It is about to open 104 meals retailers and shut 67 full-line clothes shops within the subsequent three years. The initiative has been given contemporary impetus by the corporate’s concentrate on meals.
M&S already makes extra gross sales from meals than it does from clothes and desires to turn into a vacation spot for giant weekly retailers slightly than “top-ups” of treats and prepared meals.
To try this it wants giant, open-plan shops with easy accessibility and free parking, and fewer odd-shaped websites on the town centres with restricted entry.
Berendji cites Chesterfield, the place M&S has moved right into a former Debenhams retailer, for example. “We’ve gone from a [town centre] store with no great access to parking to an edge-of-town retail park and a square box.”
He stated the corporate had “got more realistic” about what it needed to do to make these shifts occur faster. “I could do everything this year if money were no object, but it would damage the business. So we have a set of [financial] guardrails . . . we won’t make decisions that are irresponsible.”
“You have to look for those sites where you think you can do a decent surrender negotiation with the landlord,” he added. “Every single store is evaluated on an individual basis and a big consideration is what happens to the [vacated] unit.”
“Some we will sublet, some we will surrender,” he stated. The final resort is to mothball the shop, with M&S paying lease, charges and repair prices however not truly promoting something.
One issue that has traditionally deterred the corporate from overhauling its property is price. Since 2016, the group has racked up greater than £800mn of outstanding prices referring to UK retailer restructuring — together with redundancies, fit-outs of recent shops and funds to finish leases early — and expects the full invoice to prime £1bn.
Another is the complexity of its leases; whereas Next rents virtually all its shops, the M&S property incorporates freeholds and leaseholds of as much as 100 years, in addition to shops it owns alongside its pension fund.
Freeholds do at the least provide redevelopment alternatives, as in Glasgow the place a retailer on Sauchiehall Street is about to be changed into pupil lodging beneath a mannequin that permits M&S to profit financially from securing planning permission earlier than promoting to a growth associate. There are “around half-a-dozen” such alternatives within the pipeline, Berendji stated, which suggests the rotation programme ought to turn into extra self-financing in its closing years.
Shuttering an M&S retailer typically triggers a fierce response from consumers and native campaigners, with occasional accusations that the corporate is abandoning aged clients or deserting city centres.
“I do accept that it’s always a tough decision to leave and we are very mindful of the impact on the high street and the wider town,” stated Berendji. “But there are towns where we wouldn’t be maximising the opportunity for our sales or giving consumers the opportunity to shop a better range with us.”
He provides that for all of the concentrate on shifting out of city, the corporate “is and will remain in plenty of town centres” akin to Liverpool and Birmingham, the place the corporate has relocated to vacant former Debenhams shops.
“Where we are staying put, we are operating a really good renewal programme,” he stated. “London Colney is a great example of that and we’re also doing a big renewal in [London suburb] Kingston,” he stated.