M&S rethinks America as Kings food shops go on sale
Tuesday 14 September 1999
Kings runs 25 supermarkets, mostly in New Jersey, making a profit of pounds 10m on sales of pounds 245m last year. An auction process could value the shops at about pounds 120m.
The chain is being sold because it is a regional player and has only limited scope for expansion. The decision to sell follows a review of the group's US operations.
Although Kings is a relatively small part of the M&S empire, its sale raises a number of important strategic issues for the struggling group. Having announced the closure of its Canadian operations in April, the sale of Kings would leave Brooks Brothers as M&S's only remaining operation in America. Although M&S has said it remains committed to Brooks Brothers, a sale would now seem more likely.
Although M&S has admitted that it overpaid for Brooks Brothers, the shops are now making decent profits and sources close to the company say they will be retained. It is thought the business will be expanded internationally and that this plan could see Brooks Brothers stores open in Britain. It could also see Brooks Brothers' characteristic style of "preppy" clothing sold in M&S outlets.
M&S has been gradually reining in its international operations following its disastrous profits collapse and boardroom clear-out.
The decision to pull out of Canada after 26 years of poor trading did not come as a surprise as the group has run up accumulated losses of about pounds 20m there over the past five years.
Analysts do not see Kings as a core part of the M&S portfolio as management concentrates on addressing the more pressing problems in its main UK market.
Kings stores offer an upmarket selection of high-quality food, including a large range of fresh food and ready-made meals. Possible buyers could include Ahold, Grand Union and A&P.
M&S has been under pressure from the City to improve the focus of its sprawling empire and to concentrate more on winning back customers in the UK market, which suffered a sales slump last year.
It is already refurbishing its leading 25 stores and is increasing the volumes of its goods manufactured overseas in an attempt to improve its prices.
The group has also been reducing store management workers to boost the number of staff on the shop floors and to improve customer service.
The company also confirmed that it plans to sell mobile phones in the UK. It is linking up with the Orange mobile network and with the US electronics manufacturer Motorola to start selling the telephones, probably in the form of two pre-paid packages, from its major outlets next month.
It is thought the move could lead to the retailer stocking a range of other communications products. "Our customers are asking for a wider range of goods," M&S said.
M&S shares closed 4.75p lower at 375.25p yesterday, with trading performance in the UK market still thought to be poor.
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