Property played an unusually large part in Marks & Spencer’s full-year results presentation today.
Usually when times are tough retailers rein in their expansion plans – as most of the big furniture retailers are doing at the present time – but M&S’s finance director Ian Dyson gave an impassioned explanation of why M&S believes that continuing to expand floorspace is the right thing to do.
The pace of M&S’s property programme has been breathtaking. Between March 2006 and March 2009, the company will have added 261 stores to its estate. The actual number of new stores is even higher, but some are cancelled out by the closure of stores they are replacing.
But is this the right step to take when, by chief executive Sir Stuart Rose’s own admission, M&S is facing at least another 18 months of consumer caution? Property is a huge cost for retailers and some in the City have questioned whether such a gung ho approach is right in such straitened times.
The answer has to be that it is. The recovery Rose has orchestrated has been predicated on being a sustainable recovery, where the mistakes of the 1990s are not repeated. And one of the biggest mistakes was the failure to invest in the store estate.
This meant M&S missed out on the out of town boom first time round and that those stores it did have were looking, in Rose’s words, “shabby”. The right locations today aren’t those of 20 years ago and no retailer, not even M&S, can prosper by expecting customers to go out of their way to find it.
It’s also worth pointing out that the bulk of the new stores are Simply Food stores operated on a franchise basis in locations such as airports, railway stations and petrol forecourts.
M&S needs to be careful not to go overboard. Rose made what seemed like a throwaway comment that if he could find 300 more Simply Food sites tomorrow he’d take them, by which point the cannibalisation of sales from other stores would surely start to be felt.
But broadly the strategy is the right one. Being on the right retail parks and in the top new shopping centres is essential to sustaining the profit growth unveiled by Rose today.
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