M&S plans to save millions by cutting its UK suppliers

Marks & Spencer, the troubled retail group, confirmed yesterday it is planning to save millions of pounds by shaking up its supply system. It plans to increase from 5 per cent to 20 per cent the proportion of overseas goods it buys direct from factories.

"We have spoken already about the fact that we have to drive efficiencies in order to improve our profit margins over the next three years," a spokeswoman for the company said.

The intention is to achieve a 1 per cent improvement in trading margins but the spokeswoman declined to put a cash figure on this, saying it was commercially confidential.

The impact of the new arrangements will be borne by a so far unquantified number of mainly UK suppliers. At present they design clothing for M&S and then outsource production overseas, where 90 per cent of the retailer's own-brand merchandise comes from. The UK supplier may then assemble and package the clothes, possibly adding accessories before delivering the finished goods to M&S warehouses.

The spokeswoman stressed this would still be the case for four-fifths of M&S clothes by turnover, compared with 95 per cent at present. The company intends to save money by dealing direct with overseas factories, principally in eastern Europe and Asia, particularly in the supply of simpler goods which require less design input, or where the designing can be carried out by M&S staff.

Further details of the changes are expected when M&S presents its 2003-04 annual results next week. The spokeswoman said discussions with suppliers were continuing.

Analysts' forecasts suggest that M&S made a pre-tax profit of £755m last year, up from £721m the year before. But the supply plans will enable the group's chief executive, Roger Holmes, to present a picture of active management and take attention away from the search for a new chairman after the ousting of Luc Vandevelde.

Mr Holmes, a former management consultant at McKinsey, is acutely conscious of the increasing competition from Tesco and Asda, part of the giant US Wal-Mart retailing group.

Because of the more intense encroachments into its traditional trading areas, a growing number of institutional shareholders in M&S are concerned that the new chairman should have a strong retailing background rather than be a City figure. However, an experienced retailer could put Mr Holmes under pressure.