M&S to close stores and cut jobs

Stuart Rose: "We're a strong business"

Marks and Spencer plans to close 25 of its small Simply Food stores and another two of its regular stores.

The closures will mean the loss of 780 jobs. The retailer is also planning to cut 450 head office jobs.

M&S also said UK like-for-like sales - which strip out the impact of new stores - fell 7.1% in the 13 weeks to 27 December. Total UK sales fell 3.4%.

The two regular stores closing will be those at Croydon Valley Retail Park and in Woking.

The firm also warned that its profit margins would be lower this year as a result of discounting, especially in food.

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In the run-up to Christmas, the retailer held two sale days on which it cut prices by 20%.

M&S said that it had 15% less stock when it began its sale on 27 December than it had the previous year.

It is the latest High Street chain to release an update on its Christmas trading. Other updates from the High Street have revealed the following:

• Clothing retailer Next's like-for-like sales at its stores dropped 7% in the six months to Christmas Eve

• Debenhams said its like-for-like sales in the past 12 weeks had fallen 3.3%

• Blacks Leisure issued a profits warning after saying like-for-like sales had fallen 3.9% in the 13 weeks to 8 January

• John Lewis sales rose 1.2% in the week to 27 December

• Waitrose sales jumped 41% in the week to 27 December

• The clothing company Viyella, which has about 100 stores and 500 staff, called in administrators

• Several other retailers have called in administrators since Christmas, including music and film retailer Zavvi and childrenswear chain Adams.

Pension cuts

Marks and Spencer's overall group sales fell by 1.2%, though there was a 26.9% increase in international sales and a 29% rise in online sales.

The retailer hopes that its redundancy programme, store closures and pension cuts will reduce its annual running costs by between £175m and £200m.

M&S plans to cap increases in its staff's pensionable pay to just 1% per year, reducing the liabilities of its final salary pension scheme.

The days of laurels and awards for Marks' well-known executive chairman probably feel to him like a lovely distant memory Robert Peston, business editor, BBC News Read Robert Peston's blog Check M&S share price Analysis: M&S cuts pension benefits

This will severely reduce the future build-up of pension under the current final-salary scheme.

Staff who joined before 1996 will also find that their pensions will be cut more dramatically if they chose to retire early.

"We are aware that the proposed changes set out above will be difficult for those members of staff impacted," said M&S boss Sir Stuart Rose.

"But given that we expect challenging economic conditions to continue for at least the next 12 months we believe we are taking the right action to maintain the strength of our business."

Keith Bowman at the stockbrokers Hargreaves Lansdown described the figures as "highlighting challenging but not disaster conditions on the UK High Street".

But he warned that the difficulties facing M&S could not be ignored.

"Consumers globally are in retreat, the dividend payment is still under review and the group's expansion into small food outlets is now in tatters," he said.

Record day

The retailer maintained its market share in the clothing business, saying it had done particularly well in lingerie and children's clothing.

SALES BREAKDOWN Group sales down 1.2% UK like-for-like sales down 7.1% UK total sales down 3.4% Online sales up 29% International sales up 26.9% UK clothing sales down 6.5% UK home sales up 1% UK food sales down 1.1% Figures for 13 weeks to 27 December

M&S also said 23 December had been its record day for food sales, with sales of more than £50m.

Sir Stuart noted that there had still been plenty of people coming into M&S stores, with 56 million customers in the last 10 days before Christmas.

"The volumes that we sold were greater than last year and the traffic we had in our stores was as much as last year," he told the BBC.

"We're just finding that customers individually didn't have as much to spend."

Analysts are predicting falling profits, despite the cost-cutting measures.

"The cost initiatives are to be applauded," said John Stevenson at KBC.

"With the pressure on gross margin we've got, and given the sales outlook, we still expect profits to be falling next year."

Mr Stevenson predicts that M&S profits will fall to £595m from last year's figure of £1bn.