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Majestic Wine cuts store expansion plans after half yearly profits fell by 50%

Published 16 November 2015

UK-based wine retailer Majestic Wine is drastically scaling down its store openings after the company’s half year profits fell by 50% to £4.3m

wine retailer

The wine specialist had planned a major transformation program with a target of 330 stores under a three-year plan. However, with the latest results, the company is scaling back on its initial plans and has brought down the number of store openings to 230. Currently, it operates 211 stores.

The company plans to increase its spending on marketing, IT and staff. The spending is being raised in order to achieve increased revenues of £500m, according to CEO Rowan Gormley. He said that the company would increase spending by £14m a year starting 2017, The Financial Times reported.

The company wishes to chart a turnaround using a model inspired by Naked Wines, the online wine club which Majestic Wines had acquired in April.

The wine seller is planning to now shift its focus by spending on attracting customers in shops as well online. It has also restructured its bonus payments to recognize high performing staff and is investing heavily in training them. It also plans to set up 20 test stores where managers can express their entrepreneurial and creative skills, reports The Telegraph.

Rowan Gormley was quoted by The Financial Times as saying that over the past six years, the Naked Wines model was found to have given the company more flexibility along with better returns. The company expects to get a return on investment of at least 25%.

Last month, Majestic Wines also removed its 25-year old rule that customers must buy minimum of six bottles, allowing them to pick just one. The move was effectuated to boost sales, but no significant change was seen from the move, Rowan Gomley was quoted as saying by The Financial Times.

The half-yearly profits were affected due to accounting charges - one for the performance-linked payments during the takeover of Naked Wines and a writedown of the goodwill associated with its Lay & Wheeler fine wine business, The Financial Times reported.

Rowan Gomley was quoted by The Telegraph as saying: "Six months in to my new job it is clear to me that we have a solid core business at Majestic, and two great growth engines in Naked and our commercial business.

"Fortunately, the board acted decisively and quickly when it became clear that a change of direction was required, so our core competitive strengths are intact and provide a sound foundation to work from."

Image: Wine retailer scales down store openings. Photo: Courtesy of Carlos Porto/FreeDigitalPhotos.net.