Marks & Spencer to spend pounds 2.1bn on global expansion

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Marks & Spencer unveiled the most aggressive expansion programme in its history yesterday with plans to invest pounds 2.1bn over the next three years as it aims to build a global business.

It will create 5,000 jobs in Britain this year in the process.

Nigel Cope, City Correspondent, reports on a new mood at Britain's most profitable retailer.

The expansion will see M&S increase its retail selling space by 30 per cent over the next three years. In the UK it will open up to 20 more neighbourhood stores specialising in its food ranges to take the total to 35 outlets.

As it integrates the 19 stores bought from Littlewoods for pounds 192.5m in the summer, M&S will reopen some as stand-alone menswear, ladieswear and home furnishings outlets though the precise locations have not been revealed.

With additional branches opening across Europe, the Far East and the Middle East, Sir Richard Greenbury, the M&S chairman, said the company was entering a new phase.

"We are entering a period of accelerated footage and product expansion in the UK and overseas, so by the year 2000 we will be well on our way to establishing a global business," he said.

The proportion of sales M&S derives from overseas is expected to increase from the current 17 per cent to more than 25 per cent by the end of the decade.

In the City, analysts welcomed the move though they added a note of caution. John Richards, at NatWest Securities, said: "It is a step up in the underlying rate of physical growth but people shouldn't get too carried away. This kind of overseas expansion carries with it higher risk." M&S shares fell 10p to 600p on the news.

In the UK, where M&S has 286 stores, the company will open its largest branch in the world in Manchester in the next two years along with branches at Cribbs Causeway, Bristol and Bluewater Park in Kent.

A new branch in the City of London is planned for the corner of Gracechurch Street and Fenchurch Street.

A big development of its food operations is also planned. This will see the number of in-store butchers rise from 40 to 100, the number of bakeries increase from three to 50 and the opening its first six full-service delicatessen counters next April.

However, Sir Richard dismissed speculation that M&S was planning a head- to-head challenge to the major supermarkets: "The best thing I can say about that is that it is absolute nonsense. We would want our head examined."

He said a typical M&S food hall carried 2,000 to 2,500 lines compared with more than 20,000 in a branch of Tesco or Sainsbury's.

M&S will continue to concentrate on its added-value speciality foods, such as ready-made meals, where its market share is more than 50 per cent, and hot pies, where it has more than 30 per cent of the market.

In Europe, M&S has opened its first store in Germany in Cologne and has since acquired a further four sites.

This, together with planned expansion mainly in France and Spain, will increase the retail space in Europe by more than 1 million square feet.

Sir Richard said there were 20 to 25 sites in Germany that the company would like to open now if suitable locations could be found and planning permission won.

In the Far East, the company has opened its 10th store in Hong Kong though this market has been affected by the volatility of the financial markets and the handover.

Tourism was down by one-third, Sir Richard said, with hotel occupancy running at only 60 per cent.

M&S is looking at mainland China, where it is continuing negotiations on store openings with the Chinese authorities. It is also looking at Thailand, Indonesia and Malaysia.

M&S is looking again at the entering the Japanese market, which is the second-largest clothing market in the world. Property prices have tumbled since M&S decided against opening stores in Japan two years ago.

Brooks Brothers, the US clothing group acquired by M&S in the 1980s, is being taken into the Far East with a joint venture partner. Sir Richard said he would like to bring the stores to the UK, particularly London, though there were no current plans.

The pounds 2.1bn of investment will include a major information technology programme. This will see a new till system rolled out across the entire chain. The new tills can accept a range of currencies, including the euro.

Sir Richard was speaking as M&S reported a 5.2 per cent increase in pre- tax profits to pounds 452.3m in the six months to September.

The profits were affected by a pounds 10m cost caused by the Budget's changes to pension scheme funding. The half-day closure for the funeral of Diana, Princess of Wales, knocked pounds 20m off sales.

UK profits rose by 6 per cent to pounds 396.7m, helped by strong sales of clothing, footwear and gifts and an 11 per cent rise in home furnishings sales.

Food sales increased by just 2.3 per cent. In America, Brooks Brothers recorded a profit of pounds 2.3m on sales of pounds 148.9m. The financial services operation increased profits from pounds 33.2m to pounds 37.5m in the period.

Group sales were 6 per cent ahead at pounds 3.7bn. The interim dividend was increased by 9.1 per cent to 3.6p per share.

In Europe, profits fell from pounds 11.3m to pounds 9.4m. The company said it expected the French lorry drivers dispute to cause further disruption. M&S is now the largest commercial user of the Channel Tunnel.

In the Far East, profits fell from pounds 13.4m to pounds 10.8m. The company said it had been affected by the turmoil in the currency markets.