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M&S at 'turning point in its history'

3x2 ms

Marks & Spencer’s CEO and chairman presented a united front on the need for change as they unveiled a further drop in profit in the retailer’s full-year results today.

Pre-tax profits before one-off items fell by 5.4% to £580.9m for the year to 31 March compared with 2016/17, while revenue edged up 0.7% to £10.7bn.

In a frank dissection of its recent struggles, CEO Steve Rowe stressed that M&S “must accelerate plans for transformation”, saying that “no change is not an option”.

Chairman Archie Norman called the plans a “turning point in M&S history”, and both he and Rowe stressed the urgency of modernising the business to return to growth. Digital optimisation, culture change and the supply chain are key focuses in its turnaround plan.

At the heart of this, Rowe stressed that a transformation of M&S’s culture was paramount. He described the current series of changes in the top team as “fracturing” the former culture of the business, which he called “bureaucratic, slow, too corporate and not agile enough, with too many layers, and too many roles with no accountability”.

Rowe described the implementation of a new, segmented operating model within M&S: “We are clearly organising to a family of businesses, each run with full profit-and-loss accountability, and clear managing directors … Each of the businesses will be organised with its own board. I believe we are starting to assemble a world-class team who, in turn, are populating their own divisions.”

As part of the changes, which Rowe described as the “largest leadership team change in M&S history”, former Halfords CEO Jill McDonald was appointed as managing director of clothing and home last October. This week Katie Bickerstaffe and Pip McCrostie were appointed as non-executive directors.

Marks and spencer website m&s

The M&S website is to be rebuilt

Within the wider business, Rowe outlined M&S’s need to “develop a digital mindset”, and said it had the goal of one-third of sales coming from online by 2022. He noted that the current website was behind the rest of the market in terms of performance, despite sales growing steadily. Core to the digital evolution are plans to make the site faster and more responsive, rebuilding every page on the site to ensure they are responsive and mobile-friendly.

Our customer base has narrowed and we must start to grow that again

Steve Rowe, CEO

Jill McDonald described Instagram’s new shopping function as a “great new channel” for the clothing and home side of the business, and M&S offers directly shoppable product through the platform.

The digital focus is also set to extend to stores. Self-checkouts are planned for the clothing and home departments, as well as an increase in the use of employee Honeywell inventory-management devices, and the launch of potential “technology partnerships” to fuel digital innovation was teased.

Despite growing customer numbers in clothing and home for the first time in five years, and growing the number of womenswear customers for the first time in seven years, like-for-like sales overall were down 1.9% for the year.

“Our customer base has narrowed and we must start to grow that again,” said Rowe, noting that core areas such as lingerie, kidswear and suiting were areas of strategic focus as the retailer aims to pull in a wider “family age” customer.

We want to appeal in a stylish and contemporary way, still offering seasonal newness

Jill McDonald, managing director of clothing and home

Rowe criticised the business for previously being “too focused on ‘best’ and fashion”, signalling a return to wardrobe classics and high-quality value items rather than fashion-forward options, adding: “We’ve got to continue to invest in our value, and we have brought prices down again.”

“We are clear on who are target customer is,” McDonald told Drapers. “We have one loyal older customer, but we have a growing share of customers with young families. We want to appeal in a stylish and contemporary way, still offering seasonal newness.”

She also stressed the focus on “democratising” quality, aiming for the M&S clothing offer to provide “great-quality clothing at good prices”.

This will partly be realised by “buying better” and moving to a single-tier supply chain to maintain margins and offset currency headwinds.

“We need to continue to strengthen capabilities in our buying, design and merchandising teams,” said Rowe.

In addition to pulling back on discounting – it reduced the number of clearance sales last year by two – Rowe announced plans to cut the number of lines M&S offers by 13% in the next year, and refocus store space on strategic areas such as lingerie and kidswear.

Underpinning these changes are modernised supply chain systems. In April, M&S announced it was set to close its Hardwick and Neasden distribution centres to focus on a more streamlined digital model. Rowe noted that the Donington ecommerce warehouse was improving, but was currently unable to deal with peak demand, potentially meaning a second ecommerce warehouse would be needed in coming years.

Upward-only rent deals are not going to work in the future

Steve Rowe

M&S announced yesterday it was set to close 100 stores by 2022, as it refines its store portfolio. In total 25% of M&S’s 2016 store estate is set to be cut in the next four years. Future stores would only be taken in the “best” locations, looking for lower rents as a percentage of sales.

Following the recent slew of company voluntary arrangement (CVA) deals, and Next’s introduction of a “CVA clause” to demand comparable discounts on rents in case of CVA rent reductions for neighbouring stores, Rowe signalled his frustration with the approach.

“I think this is a practice that is not particularly good,” he said. “The key thing is that we need to make sure that landlords face into the changing dynamics of the market. Upward-only rent deals are not going to work in the future.”

“If we want to make sure we protect retailers wherever we trade, there are going to have to be some changes there. There is no doubt that the market has changed. We are aiming for a third of our business to come from online and, unless the market corrects its pricing of rents, that will move faster.”

The Drapers Verdict

Marks & Spencer has a long way to go to return to profit growth and claim the high street fashion crown. But its leadership is finally treating the challenge with the seriousness it deserves.

The new focus on its core older consumer and targeting of the “family age” customer is sensible. M&S will never be a fast fashion destination beloved of Generation Z, and no retailer can be all things to all people. Shoppers still turn to M&S for quality and value, and it will be better served delivering on those expectations, rather than chasing trends in a bid to make itself relevant.

It is encouraging, too, that it is seeking to increase its percentage of sales that come from online. Reducing its store portfolio will be painful, but is almost certainly necessary. Consumers’ demands are changing and it is right that M&S reflects this with a focused multichannel approach.

While Norman claimed the plan represented a “historic day” for M&S, the retailer’s attempts at a turnaround have struggled to gain footing in the past. But as M&S as a whole faces up to the flaws in its business, and openly acknowledges its problems, it can only be hoped that the high street stalwart can finally change its fortunes. 

Readers' comments (2)

  • “bureaucratic, slow, too corporate and not agile enough, with too many layers, and too many roles with no accountability”.

    Roe is not only describing M&S, but most of the larger organisations to date. Is the gravy train finally over for the clothing industry?

    Unsuitable or offensive? Report this comment

  • This plan will quickly get online to 33% of their business.

    The problem is, they are likely to lose 33% of their total market share within the next few years.

    The competition is about to accelerate. Faster. Smarter.

    Unsuitable or offensive? Report this comment

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