Marks & Spencer is only just beginning its marathon of transforming its operations, but while there may still be fires to put out, plans to adapt the UK retailer’s clothing offer to appeal to a broader, younger consumer base could certainly help, analysts say.
M&S is currently in the midst of CEO Steve Rowe’s transformation plan for the group that has involved a significant review of its cost base, the implementation of a technology transformation initiative, a halt to its Simply Food expansion plans, and the adoption of a single-tier distribution network for its clothing and home division.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
The strategy has seen the closure of stores across the UK as the retailer looks to “meet the changing needs of customers”.
Speaking to analysts at a recent investor day, Shore Capital analysts Clive Black and Darren Shirley say Rowe characterised the group’s transformation plan as “a marathon in which M&S is at miles three to four”.
“Whilst much thinking has been undertaken and a new leadership team has largely been put into place, there remains much to do, which requires investor patience,” they noted. “Rowe is overseeing a more considered change programme that is capital light, which we welcome. At the heart of its success requires necessary cultural change, something we believe the new chair [Archie Norman] will particularly assist.”
While still in self-improvement mode, under the present stewardship of Rowe and Norman, the analysts believe M&S has engaged in a more honest and open assessment of where it currently is and what needs to be done to protect and grow profitability and dividends over the medium to long term. Yet they are quick to point out that “there is no quick fix for the structural challenges and the opportunities that M&S is facing into”.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataAs such, they believe 2018 will be a year in which the retailer will seek to put out remaining business fires, undertake further analysis of the business’ needs but from the basis of utilising data more effectively, and bed in and harvest the benefits from a considerably changed senior management team, one that will be augmented by the new CFO, Humphrey Singer, who joins later this summer.
More specifically, analysts were told M&S is seeking a “more efficient and fit for purpose” logistics network for food, clothing and home, and e-commerce.
Global sourcing benefits will also continue to be harvested. Rowe indicated that much good work had been undertaken on sourcing, but that much more focus will be placed on what M&S sells, the categories, the design, the SKU count, for example, rather than extracting the nth degree from suppliers.
Going forward, Marks & Spencer sees its clothing offer for the future characterised as “contemporary stylish merchandise”, or as Black and Shirley explain, “a nod to the cat walk, alongside and amongst everyday essentials”.
“A priority in this key area is attracting more shoppers and particularly younger ones at that but with a sense of realism,” they explain. “Accordingly, whilst M&S has clearly not performed at a satisfactory level in these categories for many years, there is a need for a balanced approach and perhaps long awaited shoots are coming through.”
Rowe also talked about the importance of schoolwear, where M&S has a 23% share of the UK market, making it again the number one market leader. That base and achievement aside, schoolwear is a pathway to broader children’s clothing, the analysts believe.
“Similarly, M&S has remained enormously successful in lingerie and mention was made of its role as the store where many young ladies will buy their first bra; where it has its highest ever market share of c35%. Sustaining that activity brings the mother and daughter to store and allows for the potential of cross-selling to be explored.”
This will mean more consistent methods, so fewer promotions, less markdown activity and the aim of structuring the business to sell more at full price and so reduce the volume of product going into sale.
Product functionality also remains a key focus, as does fit and style, with service trials underway to help consumers shop more easily with services such as interactive mirrors.
“Whilst there are some encouraging signs, such as new customer acquisition in womenswear in Q3 FY2018, the first in seven years, there remains much more to be done for M&S clothing and home to deliver consistent sequential like-for-like sales growth in this area,” they conclude. “Work on the store estate and the online mechanism should, therefore, over time, assist with the profitability of clothing and home as the offer also evolves to become more relevant.”
