Marks & Spencer said it is leaving its Russian franchise business, as it also warned that its sales growth will slow due to the cost-of-living crisis.
The retail giant’s Russian arm, which is run by Turkish franchisees, operates 48 shops and has 1,200 employees.
In March, the company stopped shipments to the stores, but has now said it will “fully exit our Russian franchise” and face a £31m hit as a result.
It said profits for the new financial year will start at a lower level due to the impact of its withdrawal from Russia and the end of the business rates holiday.
It added that it expects this will stay lower throughout the year “given the increasing cost pressures and consumer uncertainty”.
M&S highlighted that this is weighing on customers’ ability to spend and it expects this pressure to “increase” further in the year. “We are therefore planning for an adverse impact on volumes due to price inflation, slowing the rate of sales growth,” the company warned.
The company has also has blamed “failed local authority or government policy” after confirming a pipeline of store relocations away from town centres to retail parks.
It stated that high streets have “lost impetus” and it is leaving multi-floor buildings with poor access and car parking, in order to meet changing consumer demand.
A further 32 stores will close this year, in addition to 68 full-line outlets and 19 smaller food shops that have already closed, including its historic site on Sauchiehall Street in Glasgow.
“Moving away from town centres is not our only focus, but we recognise that in an omni-channel world, ease of shopping and fast access is critical to competitiveness, and in many cases we believe the town centre locations have lost impetus as a result of failed local authority or government policy,” read a statement, which added: “As a result, a high proportion, but not all, of our relocations are to the edge of town.”
Trading over the past six weeks has been ahead of levels from last year, driven by strong sales in its clothing and home operation.
“While encouraging, we expect the impact of declining real incomes to sharpen in the second half and endure for at least the remainder of the financial year,” the trading update explained.
M&S currently sees no sign of inflation abating, but does believe the rate of cost growth - which includes more expensive goods and soaring utility costs - will subside by the third quarter.
Chief executive Steve Rowe said that the company is seeing cost inflation of roughly between 5% and 7%, although he highlighted significant variation across different products.
“We have continued to see significant rises in the supply chain with things like packaging costs and board costs, but have seen other things come back down, like shipping,” he said. “We will pass as little inflation on to customers as possible and will be focusing on protecting customers in our key value ranges.”
The warnings came as M&S swung to a pre-tax profit of £391.7m for the year to 2 April in Rowe’s final outing as boss.
He will hand over leadership to Stuart Machin and Katie Bickerstaffe today, after leading its turnaround over the past six years.
M&S said its troubled clothing and home business returned to growth during the year, with sales rising 3.8% against levels from two years ago, before the full impact of the pandemic.
It said this was buoyed by a 55.6% surge in online sales, while stores dipped by 11.2%.
Meanwhile, the group’s food arm reported a 10.1% sales increase.
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