Marks & Spencer challenges supermarkets with big food stores

London

MARKS & Spencer Group Plc plans to open more large food stores, shifting away from a strategy of expanding smaller convenience outlets as it prepares for an alliance with online grocer Ocado Group Plc.

The prospect of another costly store revamp as profit falls weighed on the UK retailer's shares, which declined as much as 5.4 per cent early Wednesday. Marks & Spencer said a £601 million (S$1 billion) shareholder rights issue to finance the Ocado deal was fully underwritten.

Multiple shifts in strategy have sown confusion about the retailer's plans. As Marks & Spencer opens new food stores with improved parking and a broader range, it has been moving to close other outlets that also sell clothing and housewares.

The new approach marks a shift of strategy from a recent focus on expanding M&S Simply Food convenience outlets, some of which the company said it will now close, too.

"Our strategy is as much about rightsizing, relocating and new openings as it is about store closures," chief executive officer Steve Rowe said on a call.

The changes mark a greater push into Britain's full-range grocery sector, which is already crowded, with the likes of Tesco Plc seeking to fend off new competition from German discounters Lidl and Aldi, while J Sainsbury Plc tried unsuccessfully to combine with Walmart Inc's Asda.

After a 10 per cent decline in its annual profit, M&S also plans to pilot "a renewal brand format and modernisation" programme in some of its ageing large stores. It said it needs to provide a more contemporary environment to encourage more people to buy its clothing and home products.

The news came as the retailer reported mixed financial results, with profit falling for another year but coming in just ahead of expectations. Full-year sales fell slightly more than analysts predicted in the clothing and home business, but a bit less than they reckoned for the food unit. The Ocado fundraising will represent about 20 per cent of M&S's existing issued share capital.

The company has failed to keep up with the rise of e-commerce and wrestles with the crisis on the UK's shopping streets, where Brexit has weighed on consumer sentiment. Marks & Spencer's latest turnaround programme is being led by chairman Archie Norman and Mr Rowe. BLOOMBERG