High street giant Marks and Spencer appears to have been surprised by the popularity of internet shopping, says Stephen Jardine.
This isn’t just high street trouble, this is Marks and Spencer trouble. It’s been a rough few years for one of the biggest names in retail.
Fashion sales slumped as younger customers turned to brands like H&M and Zara while attempts to lure that audience alienated the traditional core audience of older consumers. Strategy changed, bosses moved and influencers like Alexa Chung were drafted in to create collections designed to put M&S on the fashion map.
This week’s news showed none of that is working. A day after announcing the closure of 100 stores, the company confirmed a huge slump in pre-tax profits, down 62 per cent on the back of the costs of earlier restructuring plans. With one in three of its core clothing and home stores set to shut, another £150m of closure costs are in the pipeline so there is little light at the end of the tunnel.
Perhaps the biggest worry for the company is lurking down in the food hall. While other areas of the business struggled, food sales remained strong. The spaces grew into supermarkets selling mainstream brands other than Marks and Spencer.
However time doesn’t stand still. While M&S was changing so was the rest of food retail. At a time of recession and austerity, discount brands like Aldi and Lidl pulled in savvy shoppers forcing the other big supermarket brands to sharpen their prices. Meanwhile M&S is still selling £15 jars of Manuka honey.
Chief Executive Steve Rowe admits the food part of the business is underperforming and blames gaps on shelves resulting from environmental commitments and tough price competition. As the discounters have lured away the price sensitive, stores like Waitrose have developed the sort of new innovative products M&S was once famous for.
Add the rush to online retail and a strategy too focused on traditional big stores and you have a perfect retail storm. So what next? The company’s sustainability mantra could not be less helpful. “Plan A because there is no Plan B,” it trumpets. In reality, the M&S board must now been on Plan W when it comes to business strategy. On the surface, the cuts announced this week look brutal but at this stage there is no alternative if the business is to survive. After 115 years of trading, Britain’s biggest fashion retailer has built up a bulging portfolio of property in the wrong places. Much of it is either too big or requires serious investment. Any closure that costs jobs is bad but to save the patient surgery was required.
What’s needed now is a laser-like focus on what the business is about. It has some amazing strengths. The brand is famous and loved by many. It also has huge visibility on our high street including some iconic sites like Princes Street in Edinburgh. But the remaining stores need serious investment to become exciting retail environments where people shop because they want to not because they feel an obligation.
There also needs to be some serious integration between online and instore. The shift to digital has been happening for nearly 20 years but appears to have caught M&S by surprise.
The company grew online sales by five per cent last year which sounds fine until you realise John Lewis and other big names are advancing at double that rate. Bosses admit some systems are ‘too slow’ and ‘outdated’ and the central distribution depot struggles to cope with demand. Given the speed of advance of firms like ASOS, all these problems need to be fixed now.
Downstairs in food, prices also need to fall to make M&S less Waitrose and more mainstream. There are specialist stores if you want to buy expensive almond butter but few places on the high street where you can buy affordable food and drink. They could do that. Doing less better might be a good mantra moving forward.