Marks & Spencer closes up China shops as profits plunge by 88%

British retailer Marks & Spencer has announced plans to close 53 wholly-owned stores in 10 countries, including 10 units in China.

The reorganisation is a result of an 88% fall in pre-tax profits to £25.1 million in the six months to September.

The company analysed its 466 international stores and reached the conclusion that the stores it operates directly are unprofitable. The franchise business, however, is profitable.

Thus, its Chinese stores will be on the chopping block. At the same time, the company will close all stores in Estonia, Hungary, Lithuania, Poland, Slovakia, the Netherlands, Belgium, and Romania.

"Our review has shown that our stores in mainland China continue to make losses and as a result we can no longer trade with a store presence in the Chinese market," said Adam Colton, managing director of Greater China for Marks & Spencer.

Even if brick-and-mortar stores were to close in China, it's likely that the brand's online presence will remain. M&S maintains a robust e-commerce platforms both on (fashion) and TMall (kidswear).

However, M&S CEO Steve Rowe, who took up the top job in April, said the retailer plans to open 200 new Simply Food shops as part of its restructuring turnaround plans, reducing reliance on the clothing arm.

International franchises and stores in Hong Kong, which are profitable with strong brand awareness, will remain open, a statement posted to the M&S corporate website stated.

"There are various potential reasons to explain for M&S in international markets - one could be the lack of localisation," said Jack Chuang, partner of OC&C Strategy Consultants Greater China.

He said taking China as an example, "They could have further tailored the apparel products to Chinese body shapes and style preferences. For store format, they could have considered adjusting their store format and size in order to capture good locations in malls, which is now the preferred shopping channel by Chinese consumers."

However, he added that M&S’ exit from the Chinese market may not indicate the same destiny for other international brands. "Chinese shoppers are much savvier than before – they now care more and more about the product itself rather than just the brand name or where it comes from. Therefore, international brands need to work harder to cater for the needs of Chinese consumers in order to succeed in China."