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Drapers analysis: How do you solve a problem like M&S?

Amid store closures, redundancies and falling fashion sales, Drapers takes a look at how Marks & Spencer CEO Steve Rowe’s strategy is performing so far, and whether it goes far enough in its attempts to rescue the high street stalwart.

Steve Rowe

Steve Rowe

Marks & Spencer chief executive Steve Rowe last week revealed the second part of his strategic turnaround plan for the retailer, which included a raft of store closures in the UK and leaving 10 international markets. The M&S lifer said the steps were needed to “lay robust foundations for future growth” and to turn the business into an agile, multichannel operator, with fewer but larger and “more inspirational” clothing departments.

The property changes have been coupled with a shake-up of the retailer’s fashion arm, including a cut in the number of sub-brands, a reduction in the number of items overall and a drop in retail prices, while increasingly moving to direct sourcing. Meanwhile, 525 cost-saving redundancies will be made at the M&S head office, 400 of which are in London, with employees leaving over the next couple of months. As fashion sales continue to fall, like-for-likes for the first half were down 5.9%.

Drapers investigates how Rowe’s strategy is performing so far, and whether it goes far enough in its attempts to rescue the high street stalwart.

UK store shake-up

There was little surprise in the industry when M&S announced it was making cuts to its UK store portfolio, but some questioned whether the retailer could have been braver by shedding more than 10% of its domestic portfolio, particularly as there are 22 small towns across the UK with two or more M&S stores.

“M&S is making the right move in cutting the size of its store portfolio, though I think that the UK – rather than international – should have been more of a focus, given the sheer size of the UK estate and the number of shops in the UK that contribute little to the business,” says Jonathan De Mello, head of retail consultancy at Harper Dennis Hobbs. “More cost needs to be taken out of the business, and my view is that ultimately M&S should look to trim its UK store portfolio by 20% plus,” he adds.

“It could be the tip of the iceberg,” says Matthew Hopkinson, director at The Local Data Company. However, he adds that store closures in smaller locations will rock an already embattled high street: “There will be major shock and concern in towns where M&S has been a steadfast employer for 50 years. If the stores close or move out of town, the public will react.”

Edward Cooke, chief executive of retail property industry body Revo, agrees: “Although M&S continues to look actively for Simply Food expansion opportunities, its fashion-led branches in so-called ‘weaker’ high streets are expected to be the focus of store closures, and this will be of concern in those places, given the role retail plays in supporting successful local economies and communities”.

Rowe would not be drawn on how many shop staff would lose their jobs as a result of the store closures and changes, and insisted that, where possible, employees would be redeployed to other M&S branches or Simply Food stores. This was met with scepticism from the media.

International retreat

There is a sense of déjà vu around Rowe’s plans to withdraw from most of M&S’s wholly owned international stores. The retailer left France in 2001, incurring high costs to exit from leases, only to return in 2011 when then M&S boss Marc Bolland opened a flagship store on the Champs-Élysées. The retailer is once again facing a costly exit – to the tune of £150m to £200m for all 53 stores abroad. “They made the same mistake 10 years ago, so it makes me wonder if the same thing will happen again,” muses Hopkinson.

Despite the retailer’s chequered past in international expansion and retraction, Rowe remains bullish about his decision to shut 10 shops in China and seven in France, as well as all of its stores in Belgium, Estonia, Hungary, Lithuania, the Netherlands, Poland, Romania and Slovakia, resulting in 2,100 likely job losses.

Yet, as consumer sales stagger in the UK, De Mello stresses the importance of international expansion for mature retailers in the UK: “International has been made a bit of a scapegoat, when ultimately international growth is important if M&S is to grow the size of its business overall. International expansion is a long-term project and one that requires concerted investment, not a knee-jerk reaction to what the company thinks the market might want.”

Product is key

When Rowe took the reins at M&S in April, he said his first task was to get the ailing fashion business back on track. To date, the retailer has introduced a “first price, right price” policy, lowered the prices of 1,700 products, reduced the number of womenswear items by 20%  and reviewed its fits; it will also drop three of its sub-brands – Indigo, Collezione and North Coast – in spring 17 to focus on core customer pleasers such as Autograph and Limited Edition.

Rowe maintains the firm saw some “early shoots of improvement” in the second quarter, when its full-price value share was up by more than 30 basis points, but– as sales continue to slide – observers are asking if the changes go far enough in clarifying the brand’s core consumer, improving the product offer and ultimately reducing retail losses.

“Removing just three sub-brands does not seem drastic enough to allow it to target a clear consumer segment more effectively,” says Honor Strachan, lead analyst at Verdict Retail.

“Though it has tried to remove shopper confusion about which brands they should shop, by displaying clothing in product categories, as well as making steps towards improving availability and slimming down options, these actions seem like sticking plasters for its core issue of not understanding which segment of the market to go after.

“M&S should be willing to take a risk to slim down its offer and target a smaller shopper group with relevant and desirable clothing which is differentiated.”

Rowe states that quality underpins what the M&S shopper wants and expects, but the retailer’s focus on improving margin by moving 70% of production direct to factories is affecting that quality, according to suppliers.

“M&S food sales are strong and the products aren’t cheap. So, instead of cutting corners on clothing, perhaps focusing more on good design and product, and not penny-pinching, will get better results and bring back the core M&S customers, who like quality products,” one supplier said.

As previously revealed by Drapers, the retailer is pulling away from more of its third-party suppliers in a bid to streamline its processes and cut costs associated with the devaluation of the pound following the EU referendum.

The decision will have a detrimental impact on design, says one source: “If they continue to do this, there will just be the in-house design team and the factories, with no outside input, so the product will suffer.”

“They need to be concentrating on great design and working with people who can deliver this, not factories, which are far removed from trends. The in-house design team clearly need to get out more, as do the buyers, and work with people who specialise in product design and who have important market knowledge at their fingertips.”

The move was also made to make processes easier for a “significantly” reduced buying team, where Drapers understands buyers on certain categories could be halved, although M&S has not yet revealed where the redundancies will take place.

The Drapers verdict

Rowe maintains the M&S shopper is “confident” and looking forward to Christmas but, with Brexit on the horizon and the shock result of the US election, 2017 is looking more uncertain than ever. The UK retail market has never been tougher, and fashion retail has arguably been hit harder than most. Michael Weaver, managing director of Duff & Phelps, says the retailers “adapting to changing customer behaviour will fare better than more traditional retailers” as consumer spending declines. As increased competition from etailers, unseasonable weather, rising costs from the Living Wage, currency headwinds and business rate revaluations weigh heavy on those traditional retailers, M&S must strengthen its product offer and focus firmly on its core customer to weather the storm, as only the strongest will survive.

M&S in numbers

  • 30: number of UK stores to close
  • 53: number of international shops being axed
  • 525: number of head office staff being made redundant
  • £350m: cost of closing UK stores over five years
  • 8: reduction in number of Sales on M& in the first half
  • 2,100: International store staff in consultation
  • 20: percentage reduction in number of womenswear lines in the first half

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