New boss Steve Rowe is about to tackle one of the biggest problems in the hardest job in retail – Marks & Spencer’s store estate.

On November 8, Rowe will unveil his stores strategy at the retailer’s interim results. He will reveal whether M&S will radically reduce its portfolio of about 350 full-line branches, or simply trim it here and there.

Marks and Spencer

Marks and Spencer

Marks & Spencer may need to offload stores, but doing so will not be easy

Already, industry commentators are arguing the case for the former.

Broker Liberum published a note this morning arguing that a thorough edit was necessary. “Major store closures are needed to help restore margins,” Liberum analyst Tom Gadsby wrote. “Its extensive store base, once a source of strength, is becoming a burden.”

A different retail era

M&S’s store estate is in some ways a legacy of a different retail era.

While the retailer has built up its Simply Food convenience stores to 570 as it taps in to shoppers’ demand for convenience and its reputation for quality, its full-line stores were in the main launched under an older strategy.

In the words of Harper Dennis Hobbs’ Jonathan De Mello, M&S opened full-line stores “in every single location they could possibly think of that has a high street and a reasonable population”.

But its extensive estate now looks at odds with current trends in retail, some observers argue. The rise of online is hitting performance in M&S’s bricks-and-mortar operations.

What’s more, M&S’s online sales have not grown at the same rate as its bricks-and-mortar sales have declined. According to Liberum, online sales have grown by £334m since 2012. But its clothing and home sales through bricks-and-mortar stores have dropped by £568m.

M&S’s online sales have not grown at the same rate as its bricks-and-mortar sales have declined. According to Liberum, online sales have grown by £334m since 2012. But its clothing and home sales through bricks-and-mortar stores have dropped by £568m.

By 2019, Liberum forecasts, the in-store decline will reach £886m (over the seven years from 2012). Online sales will only replace around half of that, £452m, over the period.

What’s more, M&S’s online operations are adding to its cost base. “We find it unsustainable that the company should continue to pay for its store base in the face of declining sales and then pay again for the channel shift by paying to fulfil online orders,” says Gadsby.

“The inescapable conclusion”, he continues, “is to close space”. If only it were so easy.

Difficult to offload stores

Myriad problems block Rowe’s pathway.

One is the problem of local politics. “We acknowledge that closing mainline stores at M&S is layered with difficulties that many other retailers do not face,” Gadsby says.

De Mello acknowledges: “The problem M&S has is that, if it closes a shop, it gets local protests because it changes the fabric of the high street when it moves to a Poundland or a B&M.” However, he believes that M&S could cut around 20% of its portfolio over a four- to five-year period.

Being able to offload stores may not be easy.

“There has clearly been a reassessment of the high street,” says Shore Capital’s Clive Black. “Recent trends show that prime and premium locations have held up well, and may even have appreciated.

“But some secondary and tertiary locations are finding it much tougher. And they would be the locations that M&S would want to exit.”

“There has clearly been a reassessment of the high street. Recent trends show that prime and premium locations have held up well, and may even have appreciated. But some secondary and tertiary locations are finding it much tougher.”

Shore Capital’s Clive Black

Steve Rowe

Steve Rowe

Steve Rowe, whose job it will be to tackle M&S’s creaking store estate

Perhaps the most significant barrier would be that getting rid of stores could hit online sales. Click-and-collect accounts for a 60% of M&S’s online sales and any closure of stores could hit the convenience factor for customers, although that could be tackled in part by a roll-out of the click-and-collect lockers M&S has begun to pilot.

While store closures are laced with difficulty, there are other ways that M&S could trim its space.

Black points to bringing in complementary concessions and reallocating space in-store to food but warns that “whatever they do with the stores they need to do alongside the rest of the proposition.

They need to sell more clothing on an ongoing basis, not just over one or two quarters, if they are to have a healthier future.”

He concludes: “We have said consistently that we don’t think there’s anyone better for the job than Steve Rowe – but he’s got a tough job ahead of him.”

M&S declined to comment, but the picture should become clearer on November 8.