Latest M&S restructuring alarms hard-hit UK suppliers

Click to follow
Fears are growing that Marks & Spencer's radical restructuring could deal a further blow to clothing supply businesses across the UK.Fears are growing that Marks & Spencer's radical restructuring could deal a further blow to clothing supply businesses across the UK.

Up to 70,000 textile workers lost their jobs and profits at Britain's top garment manufacturers fell last year after the retailer's decision to axe many of its links with local suppliers to cut costs by sourcing its products overseas. Now, there is concern that more factories could be shut after M&S said on Thursday that it was selling most of its wholly owned overseas stores. M&S's total international business, including the 38 European outlets earmarked for closure, account for 15 per cent of group sales.

A spokesman for the GMB union, which represents thousands of textile workers, said: "We are urgently seeking some clarification from M&S about the effect [the restructuring] will have on suppliers.... We are worried about the potential loss of sales to the supply base."

An M&S official said: "There certainly will be an impact on the amount we buy....But I don't see that it will be too big, given that we have already rationalised our supply base quite a lot."

A spokesman for Courtaulds Sara Lee, one of the biggest suppliers for M&S, said: "If Marks's new strategy works and they gain business, presumably that will be better for suppliers. But if the strategy does not work, of course suppliers will be concerned."

M&S's restructuring plans drew criticism yesterday from the French finance minister, Laurent Fabius. He said: "They are using extremely brutal methods. I am referring to what has been done at Marks & Spencer and in another context at Danone." M&S employs 1,700 people and has 18 outlets in France. Danone, based in Paris, announced separate plans to cut jobs this week.

M&S shares 0.5p to 266p yesterday, as the City digested details about the company's recovery plans. Analysts at Goldman Sachs lowered their 2002 earnings-per-share forecast for the group from 12.2p to 10.3p, saying the British retailer's like-for-like sales were disappointing and overshadowed its promises of a turnaround. Meanwhile, Tea-ther & Greenwood recommend- ed that investors sell the stock. "There are some signs that M&S is beginning to drift in the direction of a solution to its problems," the brokerage house said, but it added: "Management has yet to prove that it can run its high street retail business."

In a further move, Fitch, the international rating agency, graded the senior unsecured debt rating of M&S down from "A" + to "A", reflecting its reduced confidence in the retailer's financial position and ability to pay back loans. The rating outlook also changed, to "negative" from "stable", following a trading update from M&S, which Fitch said "denotes continued serious erosion in the group's UK clothing market share".

Separately yesterday, analysts warned that M&S could find it difficult to attract bidders for its US-based Brooks Brothers menswear chain. M&S is seeking to divest the brand as part of its drive to focus on UK operations. But sector watchers questioned whether the UK company could recoup even half the $750m (£520m) it paid to acquire Brooks 13 years ago.

Comments