My heart sank when I saw the heading: Marks & Spencer unveils plans for major global expansion. This looks like a serious case of putting the cart before the horse.
Marks & Spencer (MKS) intends to open 250 new stores outside the UK in the next three years. The target is a 25% increase in overseas sales and a 40% leap in overseas profits. Those figures look highly suspect, especially the projected profit figure.
This is not the first time that M&S has set its sights on being a global player and past experience is not encouraging. Part of the current plan is 20 standalone food stores in Paris, a city from which the retailer retreated ignominiously many years ago.
The store that was opened a couple of years ago on the Champs Elysees is, I am told, buzzing. Let’s hope this can be replicated in less prestigious locations.
It is currently struggling in China, where the emerging consumer class was supposed to offer such great opportunities. A third of existing stores in Shanghai, the home of Chinese capitalism, are to close or be relocated and M&S is seeking a local partner. It is not alone in this. Tesco (TSCO) and B&Q have both struggled to go it alone in the world’s second largest economy.
The problem with opening new stores is that it is an expensive business and it is harder to make a success of expansion abroad where tastes and customs are different. M&S has sallied overseas from a position of strength at home in the past but is now doing so from a position of weakness in the UK.
It is many years since M&S lost its crown as the home of good quality, medium priced clothing and only the food side keeps the chain firmly in its traditional slot of providing a lot more quality for a little more price.
I hope that Steve Rowe, executive director for food, is right when he says that “Britishness is as saleable as ever in any part of the world”. I just don’t see a 40% increase in overseas profits coming along any day soon.
Meanwhile the clothing range at home still needs sorting in a retail landscape where discount and charity shops are the only success stories on Britain’s High Streets. Foreign distractions will not help.
M&S shares offer a reasonable yield of 3.6% and the PE is not too hefty at 16.2 so this is certainly not a case of don’t touch with a bargepole. However, I can’t rate the shares any better than a hold.
In a delightful contrast, international expansionist Vodafone (VOD) chose the same week to turn its sights on the UK with a promise of investing £100 million on opening 150 new retail stores over the next year. Given the amount of UK tax it was excused from paying, it can well afford this.
Vodafone has made most headlines over the years for its expansion into the US, now brought to an end with the Verizon deal, and in Germany with the massive takeover of Mannesheim. Now that dividends from the United States joint venture are a thing of the past, Vodafone is left with the UK plus struggling markets in Europe, Turkey and India.
The telecoms giant is underrepresented on British High Streets. Putting that right looks like a sensible use of money. The shares offer a yield of 5% but have not fully fallen back to pre-Verizon sale levels so I wouldn’t want to buy above 200p. I shall, though, retain my reduced stake.
Economy on the Mend: Car Sales Rise
Sales of new cars in March were the second highest for a single month since the system of having two new registrations a year was introduced in 1999. The figure came to 464,824, a rise of 17.7% on a year earlier.
March is always a big month because, like September, it brings in a new number plate. However, the figures for the three months to March are equally reassuring, with car sales up 13.7% on the same period last year.
Numbers are no doubt being boosted by drivers who postponed car purchases during the economic crunch and are now forced to replace aging vehicles. Registrations can also be distorted by salesrooms trying to meet sales targets.
However, the industry is confident that there is still pent-up demand even if growth in the rest of the year is more modest.
This is yet another sign that the UK economy is getting back to normal. We don’t, unfortunately, have UK manufacturers to buy shares in. Car retailers are near the top of their 12-month range but look to have further to go. If you’re tempted, keep any purchases at a modesty level.
