M&S is accelerating its 10-year overhaul of its UK stores portfolio, as figures released this week reveal the cost efficiencies and improved sales it is achieving by getting its real estate in order.

The UK retail giant has been pressing on since 2016 with a reworking of its estate to create a more focused group of "high productivity" full line stores, fit for omni-channel retailing, alongside larger, "fresher" food locations with improved click and collect services.

In May, now ex-chief executive Steve Rowe confirmed something that has been obvious in all of this, but that has been rarely heard from a much-depended on retailer like M&S - they have too many high street shops and are focusing more on out of town for growth.

Rowe said roughly 110 main stores are to close on the high street as it focuses on more lucrative locations, with 68 of these shops having closed already and another 32 to go over the next three years. Rowe said M&S was "moving with the customer, where the customer is working and shopping".

In a trading update yesterday, M&S said that as at 1 October 2022, the total closure programme now consists of 204 stores, 103 of which have already closed. Further charges relating to these closures of £170 million are now estimated within the next eight and a half financial years, bringing anticipated total programme costs since 2016 to around £1 billion.

Its reworking of its estate is far from cheap then, but M&S says it has now proved beyond doubt that new stores generate higher sales productivity and profitability and are lower cost to operate. It says it is accelerating the process with a pipeline to full-year 2025 of 10 new full line and 27 new food stores.

Part of the process is a simple one then of getting rid of underperforming stores and replacing them with better located and developed ones.

Jonathan de Mello, founder and CEO of retail consultant JDM Retail, said M&S has undoubtedly been doing the right thing. "They are closing underperforming high street stores that are often badly configured and in some instances where there are two or even three M&S stores trading over different sites in the town centre. That is not optimal. People want everything under the same roof. And we know that their top 10 performing stores are also out of town, and not just in the big malls like Bluewater and Meadowhall, but on retail parks.

"Now they are saying that they are looking at retail park expansion more overtly than before. Politically it has been difficult for an M&S or John Lewis to say we are coming out of a town centre as these retailers are so important to people's perceptions of the area. But really we can see they are going to focus on it now and of course they still bring jobs to the area at retail parks and out of town centre sites."

At the recent Completely Retail and Revo conference in London, M&S's property team was out in force promoting its "never the same again" programme.

The two major requirements, for which its aspirations for numbers of sites are "limitless", break down to food stores, where it is seeking 1.5-acre-plus sites to house buildings of 21,500 square feet and sales areas of 15,000 square feet.

And then there are full-line stores where it is eyeing five to six acre sites for buildings of between 80,300 square feet to 133,800 square feet and sales areas of 66,500 square feet to 115,000 square feet with 500 dedicated car park spaces.

M&S's agents are MMX Retail in London, Savills in the North of England and Scotland, and McMullen in the South of England.

Behind both strategies is M&S's belief that it needs to get closer to shoppers. It says in 2020 63% of the population had access to an M&S food store within a 10-minute drive and 84% within 15 minutes. It wants to be within a 15-minute drive for 90%.

To grab this space it sees a huge opportunity in the closure of department stores, not only in taking on Debenhams space in particular, but also because it is one of the last and best anchors for shopping centres and retail parks. It is clearly also taking on the German discounters Aldi and Lidl in the battle for sites.

De Mello is a little skeptical about M&S's ability to easily grab sites for its food stores requirements. "They want to open lots of Simply Foods, which makes sense. But they have already opened lots of them and there are not that many infill locations they can look at. An M&S is at the high end for food, so they need to be careful where they open these locations."

Yesterday, M&S shed more light on the financial gains its strategy is harvesting. It said its 'Food strategy' shift to larger stores in the "renewal format" is because such buildings offer greater choice in core categories, which it says appeals to a broader range of customers. And those stores achieve higher sales density and are more operationally efficient.

During the 26 weeks to 1 October, M&S reports that seven stores were converted to the new renewal format, while food sales in the larger, full renewal format stores that opened in 2021 increased 17.8% over the recent trading period.

M&S says a move into online alongside high performing modern stores while at the same time streamlining the business and reducing costs will deliver £150 million of cost savings in 2023 and 2024.

Exiting legacy stores is clearly expensive but M&S says the impact of new stores is beginning to outweigh this.

It says that alongside most retailers, it has few stores which make a cash loss on a rent adjusted basis but it continues to have a "tail of low productivity stores", with contribution margins in Clothing & Home well below the estimated average of around 22% and well below estimated incremental online margins at around 26%.

As a result, rotation out of the "tail" can improve profitability in the medium term "due to the increased contribution of new stores and the recapture of sales online at a higher margin". It says "rotating" into fewer high productivity modern omni-channel stores is critical to profitability.

Significantly it says new stores are being secured on strong terms, with short leases and they are generating substantially improved sales productivity compared with legacy locations and quick paybacks on the net capital invested. For example it says two stores were opened in first half 2021/22 at Paisley and Sears Solihull and following 12 months of trading, both are outperforming their business cases and paying back the net capital invested in just over two years.

De Mello says that M&S is clearly able to command much better terms on new leases than it used to be able to. "It can command rent frees and shorter leases and tenant only breaks. They will have a lot more frequency of rent reviews. And there is now simply a lot more data and research enabling them to cherrypick the best locations for sales performance."

M&S says it is aggressively using data to make sure it picks the right pipeline of replacement stores while recapturing sales online and in existing nearby stores, and also managing the cost-effective exit from legacy locations and leases.

It has focused a lot of energy to do this on increasing customer data capture and targeted marketing. In some cases, once it exits a legacy store, it is possible to sell the freehold or long leasehold it says but in other instances a residual liability remains to the end of the lease term. However, its says there are early signs of its property development team reducing exit costs for these sites.

And it is investing a lot in technology at new stores. It says this means they offer a better shopping environment with omni-channel services including improved click and collect and returns and better use of radio-frequency indentification (RFID) to manage stock. In addition its new full-line stores that opened in 2019/20 and 2020/21 have a 130bps lower cost to serve than the average full-line store due, amongst other things, to the reduced need for costly singles replenishment given the increased rate of sale and increased rates of self-checkout and contactless returns.

It adds that its property asset development programme should generate capital to support its balance sheet from redeveloping or co-developing high value sites such as London's Marble Arch, Sauchiehall Street Glasgow, and Hammersmith in West London.

At Marble Arch and Sauchiehall Street, M&S is in fact in the midst of highly contentious planning battles to redevelop historic sites, with its plans to demolish its Marble Arch store and replace with a major office-led development becoming a poster child for the debate over the environmental appropriateness of such schemes as opposed to refurbishment.

Yesterday it said in a statement: "The Planning Inquiry into the Marble Arch redevelopment is progressing, and the business is "very confident that the proposed solution will produce an outstanding environmental and aesthetic outcome that will be critical to the restoration of the western precinct of Oxford Street which is in decline."

M&S's trading update yesterday was as ever an important update on the health of UK retail.

It said it faces a “gathering storm”, with next year likely to be more difficult than this as it reported a near 24% fall in profits.

The clothing, food and homewares retailer said sales rose 8.8% to £5.6 billion in the six months to 1 October but underlying pre-tax profits fell 23.7% to £205.5 million thanks to a mix of inflationary pressures not passed on to customers, poor performance by its online grocery joint venture with Ocado, and its enforced exit from Russia.

But M&S said it was trading well, with clothing sales up 4.2%, food up 3% and international sales up 4.1%.

De Mello said: "They are a business that is a bellwether for the wider retail market because they encompass food, clothing and household goods. What we saw was food was up and fashion was up more, which was potentially an important trend. That is from a low base though as they have had ongoing problems with fashion sales. All of the numbers from retailers at the moment have to be taken with a pinch of salt though, as there has been a big inflationary push behind figures."