M&S scraps HK stores sell-off

PLANS to sell Marks & Spencer stores in Hong Kong to franchisees have been scrapped. Instead, the company intends to continue running them as direct subsidiaries.

The franchise plan was part of worldwide shake-up of the troubled stores group unveiled by chairman and chief executive Luc Vandevelde in March, which included extensive closures of stores in Europe.

Nine months later, with no sign that anyone in Hong Kong's beleaguered retail industry was ready to take on the 10 stores in some of the territory's best shopping streets and malls, the decision has been reversed.

Confirming the switch, company spokesman Louis Hill said: 'As of yesterday, we are no longer looking for a buyer for the Hong Kong business, and are taking it off the market. It continues to be profitable and well run, and it is in the best interests of the employees to retain it.'

Although Marks & Spencer's Far East business made £7.4m in the year to the end of March, compared with a loss of £4.3m in the previous year, the company was ready to franchise the key Hong Kong business. It also runs stores on a franchise basis in other Asian countries, including Singapore and Malaysia.

While the company claims it is keeping the stores because they are profitable, local analysts point out it could hardly have picked a worse time to try to offload them. Retailers in the territory are hurting. Sales by value were down 6.1% year-on-year in October and many stores are already advertising Christmas sales.

Franchise experts and retail analysts agree that potential franchisees would have been nervous of being caught in the trap of poor retail sales and sky-high rents. One franchise consultant said: 'It's one thing for a small business to take on a McDonald's or Pizza Hut, but who can take on this size of store, and expect to make money?'

Marks & Spencer stores in Hong Kong cover 202,000 square feet of prime property, and analysts estimate that rents could range from HK$80 to HK$90 (£6.90-£7.80) per square foot to a top-of-the-range HK$300.

For many years, Marks & Spencer in Hong Kong had been seen as an expatriate and tourist-based chain, with product lines that failed to appeal to the vast majority of the population. Lately, however, new items on the stores' shelves appear to have been better aimed at younger, fashion-conscious Chinese shoppers.