Comment: M&S banking on making the most of its reputation

MARKS & Spencer, best known for knickers, dine-in meals and lavish advertising campaigns, is hoping customers will add mortgages and a current account to their shopping basket.

The retailer is hoping to lure disgruntled customers of the high street banks to its latest venture: M&S Bank, a fortified version of M&S Money. It’s a strategy that builds on the retailer’s strong brand, but is not without its risks.

M&S will also be taking on its direct rivals: Tesco and Sainsbury’s which have their own banking operations, though they have yet to make the sort of breakthrough desired by those wanting to weaken the stranglehold of the traditional banks.

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Unlike Tesco, which bought itself out of its joint venture with Royal Bank of Scotland, M&S is to develop its bank in conjunction with HSBC. Indeed, HSBC owns M&S Bank. It will provide the capital, products and support systems while M&S will create space in its stores for upwards of 50 branches and offer a brand stronger than any bank. The tie-up could help HSBC expand without the costs associated with stand-alone branches. In Scotland, there are clear advantages to such a move.

Profits are split equally between the partners and last year M&S Money contributed just over £50 million to the retailer’s profits – a 44 per cent rise on the previous year, and in a year when group profits fell to £706m.

The idea of a fully-fledged bank was hatched after M&S’s marketing director, Steve Sharp, watched queues forming outside branches of Northern rock in 2007 and noticed many of them carrying M&S bags. These were his customers, too, and they clearly had concerns about where to put their money.

The M&S board took its time to approve the plan because of worries that offering mortgages would also mean one day ordering repossessions. For that reason – and HSBC’s reputation for stringent vetting of applicants – customers should expect M&S Bank to be ultra-cautious about who gets a loan.

But M&S does have the benefit of experience in financial services. It launched its financial services business in 1985 and stepped into credit cards in 2003.

With its products regularly among the best-buy tables it has given itself a head start on other “new entrants”. It will be interesting to see if its mortgage plans encourage Tesco to speed up its own delayed product.

On the downside, investors will note that Tesco struggled to persuade shoppers to use its pilot in-store banks. They will also be concerned that M&S Bank does not become a major distraction at a time when the group’s key womenswear sales are on the wane. Getting that right must remain a priority.

Raise a glass to an old favourite

HOW many of you toasted Scotland’s success in Australia last week with a wee dram? Mmm… thought so. Scots are more likely to celebrate with a pint of lager, but it’s the water of life that is scoring for Scotland overseas.

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Our foreign friends cannot get enough of Scotch whisky, driving exports up by 23 per cent last year to £4.2 billion. And it’s the growth of aspirational customers in emerging markets such as Brazil and Singapore that has prompted the world’s two biggest sprits groups – Diageo and Pernod Ricard – to unveil plans for more distilleries.

It proves the point that after all the initiatives aimed at building the economy around new technologies it pays to stick to what you know best.