Head office, field and distribution centre jobs to go in cost-cutting assault

Matalan is to axe more than 100 jobs as part of a cost-cutting drive that will save the discount retailer in excess of £30m.

The job cuts will affect about 5 per cent of head office staff. Fifty posts at Matalan’s distribution centre at Knowsley in Merseyside have been axed already.

The ambitious cost-cutting offensive comes just three months after the retailer was taken private by founder John Hargreaves and chief executive Alistair McGeorge was appointed.

Sources close to Matalan told Retail Week that, following a review of the business, McGeorge believed he could slash costs by more than 10 per cent. The existing cost base - excluding product costs - is thought to be between £350m and £400m.

The retailer said: ’Matalan recently returned to private ownership. As a result, all structures have been reviewed to identify ways in which we can reduce the cost base to a financially viable level, to allow the business to be competitive and grow.

‘Regrettably, the outcome of the review is that the level of staffing is unsustainable and an immediate reduction of the workforce is necessary.’

McGeorge is believed to have set himself the tough target of returning the business to a similar level of profitability as achieved in the early part of this decade, when Matalan recorded profits of more than £100m. Pre-tax profit for the year to February 25, 2006, was £56.7m.

Aside from job cuts, McGeorge is understood to be keen to press on with the value chain’s store downsizing programme.

Matalan has partially exited 12 of its largest stores already to help reduce its rent bill. In some instances, the retailer has installed mezzanine floors to help make better use of space in the smaller units that have been created. McGeorge is thought to favour sites with floor space of about 35,000 sq ft (3,215 sq m). Further store openings are on hold.

Retail Knowledge Bank senior analyst Robert Clark said: ‘These cost cuts are do-able, but will depend on the time frame. With Matalan’s static sales and unit costs - such as the minimum wage, rentals and rates - all rising, it is a difficult call. Fuel costs are coming down, so there is some scope for that to feed straight in.’

Matalan was taken private at the end of last year in a deal worth £817m. It faced increased competition from value specialists on the high street, including Primark and Peacocks, and sales were flat at about £1bn.

At the time, Hargreaves said that privatisation would enable the business to make the changes necessary to return to growth.