Global Economics

Marks & Spencer Heading to China


Remembering its retreat from the world stage five years ago, the retailer cautiously announced it would open its first mainland store

Marks & Spencer is to bolster its international business by opening its first store in China, the retailer said today.

M&S chief executive Stuart Rose said its first outlet in the fast-growing Chinese market - likely to be in Shanghai - would open in the next financial year, which starts in March.

The group will enter China on a wholly-owned rather than franchise basis and has also signalled its intention to accelerate its growth in India, where M& S currently has around 10 stores.

The news came as the group posted better-than-expected profits today but warned of an "uncertain" economic outlook. The company shrugged off the impact of the poor summer weather and a major store refurbishment programme to post underlying pre-tax profits of £451.8 million for the half-year to September 29, 11.5% ahead of last year and ahead of consensus City forecasts.

UK like-for-like sales across the group grew by just 1.6% in the first half in the tough trading conditions.

The retailer's cautious comments about the Chinese move - "growing on a site by site basis in order to manage our exposure and risk" - follow memories of M&S's hasty retreat from the world stage five years ago as its UK business waned.

In the mid-nineties, there was no sign of the disaster to come. M&S made record profits of more than £1 billion in 1997 and 1998, but the figure dived as low as £145.5 million in 2001 as customers were put off by dreary clothes and depressing stores.

Up until late 2002, the company traded in 30 countries worldwide following an expansion programme which began in the 1970s.

But the Western European stores were closed in 2001, just two years after the last stores in Canada were sold off.

The American venture, the Kings supermarkets chain, acquired in 1988, was sold at a loss in 2002 to allow bosses to focus on the company's ailing UK operations.

The preceding year, M&S had sold the Brooks Brothers chain to Retail Brand Alliance for 225 million US dollars (£107.8m), a third of the 750 million US dollars (£359.4m) it paid for the upscale clothing business in 1988.

The UK operation was saved at the expense of the overseas sales, which were accompanied by a radical overhaul of the brand, including refurbishing shops and bringing in new fashion and food ranges.

Under a turnaround led by Mr Rose M&S announced a 28% increase in annual profits to £966 million in May.

In recent years the company has turned to franchises to extend the brand without risking shareholders' cash. It now has 257 franchise stores in 36 countries and Mr Rose said "we want to do more of it".

Of the M&S franchised stores, 65 are in the Asia-Pacific region, 60 in Europe, 45 in Central Europe with the balance in central Asia and the Middle East. The group also has directly owned stores in countries including Hong Kong, Gibraltar and Ireland.

The international business currently contributes around 8% to group revenues, although Mr Rose is looking to lift this to between 15% and 20% over the next five years after getting the company's house in order at home.

Provided by The Independent—from London, for Independent minds worldwide

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