M&S said its turnaround plan for its clothing and home division is 18 months behind schedule

M&S said its turnaround plan for its clothing and home division is 18 months behind schedule

The Marks and Spencer management team has admitted it is 18 months behind schedule on a turnaround plan for its clothing and home business.

The announcement was made by its CEO Steve Rowe at the Capital Markets Day meeting yesterday in London.

M&S said it is in the early stages of its "restoring the basics" plan which it announced in early 2018, following tumbling profits on declining sales. Under the five-year plan, M&S has the ambition to create fewer, better clothing and home stores, which will be larger, digitally enabled, better located and more inspirational for customers to shop.

Since then it has announced a raft of store closures, upping its originally planned 66 closures to more than 100 before 2022.

In its most recent set of full-year results, profit before tax for the group fell 9.9% to US$663.1m and clothing and home sales fell 3.6%. 

According to Bank of America Merril Lynch (BofAML) research analyst, Xavier Le Mene, who was at the event, M&S updated that it was deep into step one of the restoring the basics plan with good progress in food but was about 18 months late in clothing. Management said it wanted to address the issues but would not rush initiatives just because it was late with them. The delay is, however, "causing frustration".

The retailer confirmed it is "still leader in clothing with key positions in some categories". It has seen its market share growing in its top categories like bras (37% market share). 

It is also clear on what needs to be done on slow-moving product lines and having too much stock and markdowns.

Areas of improvement it has identified include planning and stock visibility; better product positioning including the removal of outdated product lines and restoring customer confidence in the range; improving logistics so it is simpler and quicker; upgrading its channels including increasing visibility online, improving delivery and modernising stores.

"Overall M&S wants to build a virtuous cycle where a better and adapted clothing offer will flow in a smooth and efficient supply chain, offering a seamless customer experience across a multi-channel approach," says Le Mene.

"Though promising, the task is vast and still at its very early stage. After stating being 18 months late in its plan to fix clothing and given the recent departure of the head of the clothing and home division and head of the supply chain, we need evidence that changes are underway."

On menswear, M&S identified it is perceived as "too old" which is resulting in lost market share and that an overload of brands means its menswear offer is too difficult to shop. The target is to reduce the number of options and modernise the offer and push value products over more high-end ones.

On womenswear, which has been in decline for ten years according to BofAML, the problem is lack of a clear strategy combined with too many last-minute changes and wrong sizing which results in poor consumer confidence. The plan here is to focus on a product range with broader appeal and focus on top-line selling items, such as T-shirts and denim.

"M&S is still number one seller in denim but yet has no authority in the category. It needs to get the right fit, the right wash and the right finishes. Since the changes were implemented, M&S has been growing its market share in denim. The same was done for shorts and T-shirt where sales increased by 25% by getting the right fit, print and quality, challenging Primark," says Le Mene.

Meanwhile, Clive Black, analyst at Shore Capital, notes: "The management that participated certainly left the clear impression that whilst much work has been undertaken, there remains very much more to do, most particularly in the group's clothing and home segment.

"The major workstreams underscore our long-standing view that the transformation of M&S is indeed a medium-term project, which feeds into our expectation for rather flattish earnings and dividends profile out to FY2022, maybe FY2023.

"Whilst all this is so, we welcome the candour and honest assessment undertaken by M&S, which is central to necessary cultural change, and also the progress made to date. The most notable achievements to us revolve around the enhancement of the senior management team, the rationalisation of the central overheads, the imminent digitisation of the store operations, new management information for stores and advances in the food division. We also welcome the fact that a re-assessment of the Sparks loyalty programme is commencing, given its complexity and so sub-optimal nature."