JOHN Menzies has given up the unequal struggle in the High Street and is to sell its 232 shops.

The decision came as part of a strategic review introduced by chief executive David Mackay, which led to the conclusion that the 165-year-old company's future lies in distribution rather, not retail.

Talks are taking place on an exclusive basis with a ''serious buyer'', and Menzies hopes the disposal will be complete before the end of the financial year in April.

The Martin Retail group - which includes RS McColl - said it had been invited by Menzies to discuss the purchase but informal agreement could not be reached.

Another possible buyer, Clinton Cards, refused to comment.

Menzies repeated its statement of earlier this week that no closures are planned and there will be no redundancies among the 4679 staff employed in John Menzies Retail. There are 92 Menzies shops in Scotland.

In addition, Menzies is introducing major changes at its Early Learning Centre chain of 220 shops, 20 of which are north of the Border. It will concentrate on its toy activities and withdraw from nursery clothes and equipment and may well dispose of the 22 stores selling such products.

A rise in losses of more than #4m at ELC helped increase the deficit in the retail division in the six months to the beginning of November from #6.2m to #11.4m to leave the group's pre-tax profit dropping from #2.6m to #200,000.

In contrast, the distribution arm increased its contribution by 25.9% to #13.9m. The company belief is that John Menzies Retail had not justified its investment for a long time.

The products it sells - ranging from newspapers to video - are available in supermarkets, corner shops and petrol stations. Supermarkets in particular have made major inroads in the buoyant magazine business. Menzies has fought back to some extent by organising magazine sales for Sainsbury.

Finance director James Bennett said that ELC could lose up to #10m for the full year while write-offs on redundant stock could increase the subsidiary's deficit to about #15m.

It is intended to float off the activity in three to five years time. Meanwhile, ELC plans centre on electronic learning.

In the past, ELC's management had not invested in new products but had expanded into clothing where there was intense competition, Mr Bennett said.

John Menzies Retail had a flat Christmas trading period overall, with music particularly poor and books under increasing pressure, partly due to the expansion of the Waterstone's subsidiary of rival WH Smith.

ELC's like-for-like toy sales declined 3.8%.

However, the THE Games subsidiary was an outstanding success thanks to its exclusive distribution contract for the British Isles with Nintendo. Some 360,000 of the Nintendo 64 consoles were sold during the Christmas period to raise the total to around 700,000 since the launch last March.

As a result, Menzies believes it now has a 20% share of the #400m per year games software market and will benefit as more products are introduced.

Distribution saw wholesale increase volume by 8% in high- profit-margin magazines partially offset by a 4% decline in low-

margin newspapers.

The future has been assured through the early renegotiation of major contracts to cover the next seven years.

Menzies is rapidly expanding its Concord aircraft cargo handling with a contract to manage the 100,000 annual tonnes out of Heathrow for Lufthansa. The company hopes this will help it expand internationally under the German airline's wing.

Mr Bennett pointed to the potential of cargo handling at Prestwick as another opportunity.

The full-year results will contain a #26.7m write-off on the 37%-owned Funsoft CD-Rom distributor in Germany, but there are warmer feelings for the Samas office supplies business in Holland, where profits expanded in guilders.

Menzies has received a #35m, 10-year loan from the Prudential and another insurance group which is covenanted on future cash flow rather than assets. The #20m, 8.58% Preference shares held by Murray Johnstone must be repaid by 2003.

Jamie Mathieson of brokers Bell Lawrie White said he was taken aback at first that Menzies had decided to sell its High Street chain rather than ELC. He praised the management ''for getting to grips with the problem rather than pussyfooting about''.

Mr Bennett said Menzies had abandoned retail before. The company was formed in 1833 when John Menzies was given the rights for Charles Dickens' works in Edinburgh.

The business was expanded into railway bookstalls but the com-pany quit retailing in the 1890s and did not resume the activity until after the Second World War.

Mr Mackay forecast that the full- year profits before exceptional items ''should show a satisfactory result''.

This has been interpreted by analysts as an outcome similar to last time's #30.6m. The interim dividend has been held at 4.8p.

The shares closed 13.5p down at 351.5p, their lowest since 1992.

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