Why is Marks and Spencer closing down 110 stores?

One of the UK’s oldest retailers, Marks and Spencer, has announced a new round of store closures amid its plans to axe 110 stores in the next five years. The news follows a plethora of high street store closures – but M&S’ latest move is more strategic than catastrophic.

According to Craig Burton, regional manager at M&S, the retailer is reacting to “shopping habits changing” amongst UK consumers. He said: “We’re rotating our store estate to make sure we have the right stores to offer customers.”

Consumer purchasing power has shifted dramatically as a result of the cost of living crisis.  With 1,059 stores across the UK, we explain what’s behind Marks and Sparks’ strategic reshuffle, and how it might spark a new era of growth for the business.

Financial turnaround

Marks and Spencer has had a tumultuous few financial years, to say the least. Inflationary pressures meant that, in the last financial year, the 140-year-old retailer posted a pre-tax profit of £482 million; a 7.8% decline in the previous 12 months. 

Compared to rivals, however, the brand is flourishing. Clothing and food sales have risen, and M&S is expressing cautious optimism about its future.

Under the tenure of new CEO Stuart Machin, the firm reintroduced a dividend for shareholders last summer, sending its share price climbing from 127p in January to an impressive 224p by August.

Partly this is due to decreasing competition. Department stores like Debenhams, BHS, and House of Fraser have faded into the background, weighed down by store closures and administration chaos. 

But the company is not content to just outlive its competitors. The firm is targeting a 75% surge in profits, a long-term strategy that has seen it invest heavily in value for customers.

Cost of living discount

In answer to declining consumer sales, many grocers and clothing retailers have chosen to raise prices over the past few years to make up for a profit shortfall. 

But while peers like Tesco were accused of ‘rampant profiteering’ by trade unions due to the record profits it recorded during the crisis, M&S has taken the other route, absorbing many of its suppliers’ price increases to strengthen customer wallets and buy their loyalty.

Previously seen as a ‘premium’ retail brand, the company last year issued £30 million worth of discounts to its food and clothing lines in order to lure in food shoppers amid the supermarket price wars.

Its efforts paid off. Despite warnings that the Christmas period would see a fall in growth, M&S took the turkey crown for December trading, reporting a better-than-expected 8.1% rise in sales according to Reuters.

Scaling down to scale up

M&S’s store closures might disappoint customers in specific UK locations but its logic makes sense in today’s business landscape. The company is working to reduce its portfolio of “full-line stores” as shoppers prioritise bargains over choice.

Many consumers are shifting towards more cost-efficient, second-hand selling platforms like Vinted. Meanwhile, the move to remote work means people are investing less money into workwear (devastating formal clothing chain, Ted Baker).

In answer, Marks and Spencer has thinned out its many in-house clothing lines to prioritise its more profitable food lines. Here, premium options are increasingly replaced by own-brand staple goods like milk and eggs.

That’s not to say the company is entirely scaling back. Despite the planned store closures, M&S may soon be more accessible to shoppers thanks to its investment in ecommerce.

Recognising the number of shoppers who now buy online, M&S has also shared plans to update its shopping app in an attempt to double its user base to five million by 2026. 

The move is a smart decision following well-publicised retail failures such as Superdry. Once the darling of millennials, the brand was late to the internet shopping party and has let its audience base flock to alternate clothing websites like Asos.

Consumer demand big concern for businesses

Store closures have rarely been good news for UK shoppers, but the headlines about Marks and Spencer’s shutting up shop are only the next stage in Machin’s five-year plan.

As well as the 110 stores slated for closure, five new ‘flagship’ department stores are planned for Liverpool, Leeds, Manchester, Birmingham, and Thurrock.

While its finances are more aptly described as ‘good’ than ‘strong’, the former label is a rare beacon of hope for UK retailers in the cost of living crisis. In a recent Startups survey, 15% of UK firms said “fluctuations in customer demand” were their biggest concern for this year. 

Sometimes in business, it is necessary to go backwards in order to go forwards. Marks and Spencers shows us that, by prioritising customer relationships, it is possible for firms to grease their wheels and plot a path out of today’s economic downturn.

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