M&S to tailor its stores to affluence of local shoppers

Marks & Spencer has unveiled plans to segment its stores based on an area's demographics and affluence for the first time in its 127-year history.

The retail giant hailed market share gains in both general merchandise and food yesterday as it reported a surge in full-year profits, but said it expects conditions to be challenging in the year ahead, despite a recent boost from the April weather, bank holidays and the royal wedding.

M&S has previously only segmented its UK product offer by the size of the stores. But from October, in a number of pilot stores, it will vary the layout and merchandise according to affluence, age and ethnicity, as well as local competition.

Marc Bolland, the chief executive of M&S, said: "Customers have told us that our stores are not always easy to shop."

In simple terms, in affluent areas where there is also a high proportion of young children, the M&S pilot stores will have more childrenswear and its higher-priced Autograph and Indigo clothing. If it works, M&S will roll out the new concepts next year. But Mr Bolland said it was not "rocket science," adding it was merely "best practice".

He said a "large chunk" of the £300m it will spend this year will go on its UK stores. While he said its previous store modernisation programme had been necessary in terms of improving the core infrastructure, it had not delivered "an inspirational shopping environment for our customers".

In all its stores from the autumn, the retailer is also to give its core Marks & Spencer ranges the new identity of M&S Woman and M&S Man to strengthen its brand values.

This ties in with the strategy Mr Bolland unveiled in November to "increase the role of the M&S brand" and drive innovation, such as with the "Only at M&S" labelling for exclusive food and general merchandise products. This helped the retailer to grow sales in both these divisions, which resulted in M&S delivering a 12.9 per cent rise in pre-tax profits to £714m for the year to 2 April. While this was slightly ahead of consensus City forecasts, it is still significantly lower than the £1bn posted in May 2008.

Group revenues rose by 4.2 per cent to £9.7bn and the closely watched UK like-for-like sales grew by 2.9 per cent. However, international sales rose by a lacklustre 6.1 per cent to £1bn, hit by trading in the troubled economies of Ireland and Greece.

In the UK, Mr Bolland said, consumers are "buying into quality, they are buying into smaller ticket items instead of bigger ticket items and they are buying into treats".

Its clothing sales benefited from the trend for customers to "buy once and buy well", he said, particularly for women's dresses. The retailer's clothing market share rose by 50 basis points to 11.7 per cent for the year to 17 April, according to Kantar Worldpanel. Over the year, UK general merchandise like-for-like sales rose by 3.2 per cent, but there was a marked contrast between the 6 per cent uplift in the first quarter and 3.9 per cent fall in the fourth.

M&S also touted market share gains in food – which accounts for about half of total revenues – and the business grew underlying sales by 2.6 per cent over the year.

But M&S said that its total bonus pot for its 70,000 staff would be more than a third lower at £53m, compared with £81m last year, after it failed to hit certain "operating plan targets".

M&S declined to comment on the bonus of Mr Bolland, who could receive £15m in total pay for 2010/11, although about half is based on compensation for bonuses accrued at his former employer Morrisons. But as the total bonus pot fell, he is unlikely to get the full amount of 250 per cent of his salary.

On the outlook for consumers, Mr Bolland said: "It's going to be a difficult year on the consumer side but they know that." M&S raised its final dividend by 13.7 per cent to 10.8p.