There are five key elements to our International growth strategy:
- Growing our equity partnerships in line with our revised business model;
- Expanding our footprint into new markets and within markets where we already operate;
- Achieving operational excellences;
- Driving brand integrity and awareness; and
- Finding innovative ways to grow our food offer.
In 2007/08 we made significant changes to our business ‘ownership’ model. While expansion in previous years has been primarily through franchising, we are now placing a stronger emphasis on expanding through partly-owned subsidiaries and on a wholly-owned basis. Expanding in this way has proved successful in emerging markets, where our subsidiaries in Southern and Eastern Europe performed well for the year. We also continue to run a thriving franchise business, which gives us further flexibility to select the most appropriate model on a market-by-market basis.
We opened 32 new stores during the year taking our total International store count to 296. Now in 40 territories, we have continued our strategy of closing smaller stores to concentrate our efforts on premium locations. This means we now have a total of 3.3m sq ft in our International portfolio, including new stores in Libya, Montenegro, and most notably in China where we opened a 40,000 sq ft flagship store in Shanghai. We plan to grow our International selling space by 20% next year with around 50 new stores opening across Europe, the Middle East and India.
During the year we also made significant changes to our ‘operational’ model so that we can do business more efficiently. The launch of our International Range Planner is the result of a year’s work and will revolutionise the way we approach range buying and store cataloguing globally. We know that it is never a case of one size fits all, and are confident these changes will ensure we accurately stock the sizes and styles appropriate for customers in our different markets.
Our International supply chain now includes regional hubs in Hong Kong, Singapore, Sri Lanka and Istanbul. These changes make distribution more efficient and cost-effective, helping us get the latest trends into our international stores more quickly.
Additionally, we are in the process of implementing a new SAP finance and operating system in China and Hong Kong, which will be rolled-out through the rest of our International business, improving effectiveness through better management information and new processes. As in the K it will support our teams in delivering improved supplier management.
There are clear signs that the economic downturn is being felt in Asia. Despite this, our Shanghai store is performing well, following some early problems importing food, which were quickly resolved.
We will continue to grow in a measured way, learning from each market before ramping up expansion. We are adapting our ranges, introducing smaller sizes in womenswear and shorter shirt sleeves in menswear, as we do in Hong Kong.
Our strategy requires us to make tough commercial decisions and be disciplined. While we are expanding in China, earlier in the year we closed our stores in Taiwan where our trial did not perform to a level that warranted further investment.
Elsewhere the response to lower pricing gives cause for encouragement, despite trading conditions. Our franchise businesses in Indonesia and Thailand in particular have seen very positive growth.
The market in Eastern Europe traded well up to last summer – but softened in patches thereafter. Our strongest market was Russia, where we opened four new stores, and achieved high like-for-like sales growth. The Czech Republic and Poland also held up well, although have softened since Christmas. In October we brought the Polish franchise business into our Czech subsidiary for £1.9m. We opened two stores in Poland, five stores in the Czech Republic, and three in Slovakia during the year.
We have made strong operational improvements in Greece with our subsidiary partner Marinopoulos Group. We have improved the breadth of our ranges and lowered prices as well as instigated plans to tighten up supply chain performance. These actions have helped mitigate against the weak consumer market and the impact of recent unrest in Athens, as well as support the growing business with six new stores opened during the year.
In the Republic of Ireland, one of our most extensive overseas markets, we opened a 14,000 sq ft store in Killarney, taking the total portfolio to 18. However trading conditions remained tough as a result of worsening economic conditions.
As reported last year, while we have traded in India for a number of years through a franchise agreement, in view of the long-term opportunity, we set out to find a partner who could help us grow in the market. In April 2008 we formed a 51:49 subsidiary with Reliance Retail and on 31 March 2009 acquiring Supreme Tradelinks, our former franchise partner, and its 14 M&S stores. In April 2009 we opened a new store in Mumbai. We remain on track to open 10 to 15 stores within the next two years.
The Middle East bucked the general trend, and performed strongly through the year. Conditions have worsened recently but a phased opening programme of four new large stores will ensure that the business continues to grow through 2009/10.
Our franchise partner in Gibraltar is opening a 10,000 sq ft store in Marbella, selling the full range of M&S clothing, as well as homeware and food. The store, which will service the large expatriate community, will open in September.
The bursting of the property bubble and a weak pound will benefit our International business. This means that in the short term we will continue to secure stores on more favourable rental terms, extending our footprint at comparatively reasonable costs. Most of our overseas businesses buy from us in sterling, which makes products cheaper for them, so they can pass that saving on to the customer. As in the UK our long-term plan will be flexed to accommodate the changing market environment.