Furniture group MFI has unveiled a major restructuring plan aimed at reviving its fortunes which could see up to 1,500 jobs being shed.
The firm is closing 11 stores, cutting back on manufacturing and reducing the range of goods it sells to focus on fewer, more expensive products.
MFI said that its UK retail side had recorded an operating loss of £85.1m in 2005, against a loss of £31.3m in 2004.
Chief executive Matthew Ingle said 2005 had been a “difficult year”.
Cutbacks
MFI said that about half of the goods sold in its stores were currently made in-house.
However, in order to cut costs, it said it would be cutting its UK manufacturing capacity by about 40%, which could lead to about 1,100 job losses. The firm said this should produce annual savings of about £12m.
On the retailing side, MFI said it planned a major shake-up of its operations.
“Retail suffers from poor customer service levels, both in-store and with delivery,” the company said. “A much more focused and flexible structure is required to improve performance.”
MFI said it would cut back the range of products it offered to concentrate on kitchens and bedrooms, which account for more than 80% of sales in its stores.
It also said it would concentrate on selling a smaller selection of higher quality kitchen and bedroom ranges in order to lift profit margins.
The changes mean that MFI now plans to sell its Sofa Workshop business. The firm also said it had identified 11 stores for closure, and in addition it is planning to shut three delivery centres.
The reforms are set to cut 370 jobs from MFI’s retail operations.
Higher profit margins
Shares in MFI rose by more than 6% in morning trade as investors focused on current trading news, which proved better than expected.
In the first few weeks of the year, like-for-like sales at MFI’s stores – which strip out the impact of store openings and closures – were down 14% on the same period in 2005. <br
However, profit margins were up by five percentage points and as a result, like-for-like gross profit was only down by 5%.
At MFI’s profitable Howden joinery business, like-for-like sales were up 6%, with margins up by one percentage point.
The Howden business – which MFI is seeking to expand at the rate of 30 new stores a year – reported an operating profit of £103.6m for 2005, up from £102.8m in 2004.
The MFI group as a whole reported a pre-tax pre-exceptional loss of £600,000 for 2005, down from a profit of £54.5m in 2004.
However, after a taking into account exceptional items – which included a number of asset writedowns – pre-tax losses were £110.8m, down from a profit of £20.6m in 2004.
From The BBC