M&S: Expect big change, but not quite yet

Screen Shot 2016-05-25 at 08.52.31M&S released its full-year results this morning. But before we go into the figures. Let’s look back. In the financial year 1997/98, M&S had a clothing market share approaching 14%, pre-tax profits of almost £1.2bn on sales on £8.24bn and was the UK’s most profitable retailer.

The company’s decline started in the following financial year and since then it’s spent a lot of money trying to turn itself around.

So, to the new figures. Its full year results cover the 53 weeks to April but given the recent financial year had an extra week in it, I’ll be looking at the comparable 52 weeks period. During that time, it sold £10.4bn worth of goods, up 0.8% year-on-year and way above the £8.24bn it was selling in 1997/98.

M&S SS16

M&S SS16

But while pre-tax profit was up 3.1% compared to the previous year, at £684.1m it was still a long way off that magic £1.2bn figure it achieved nearly two decades ago.

During the latest year, the company saw a good performance in foods (as almost always) but in clothing and home, while margins rose, it was “unsatisfactory”. There was a 2.9% slide in full-year clothing and home sales and a 2.7% dip in Q4.

But the company, under M&S veteran (but relative newcomer as CEO) Steve Rowe, has plans to fix this.

It wants to “re-establish style authority” with a “focus on product, quality and fit”. It plans to lower prices overall but cut back on markdowns so more goods are sold at full price. And it wants to improve the customer experience with “sharper ranges, better availability and investment in store staffing”. That would be great as I’m sure I’m not the only person who finds spotting shop floor staff when in a branch of M&S as like the the worst ever Where’s Wally challenge.

Forensic review

The company said that over the last six weeks it has undertaken “a forensic review of M&S in order to build an honest picture of our business today.”

On the upside, it has 32m customers a year, a strong brand identity and has been investing in transforming its systems and supply chain, improving its website (although online sales have slowed, apparently) and “taking greater ownership of our product design and sourcing.”

To satisfy those 32m people, the new plan involves a focus “on wearable, contemporary style and unbeatable wardrobe essentials.”

M&S said: “Product is key to this. Our customers look to M&S not for fashion trends but for accessible products they can wear with confidence. This will be complemented by a refocus on stylish everyday essentials, which we will continually refresh to ensure they are current and competitive, and underpinned by standout M&S innovation.”

Thats’ good news if it works. M&S used to be known as the place to good for quality essentials and also one where technical innovation was to the fore.

It’s interesting that the company said it would work to lower prices, given that in its heyday, customers accepted that they would pay a price premium for the quality available at M&S. Some of the ability to lower prices in the future will come from relying less heavily on markdowns so it will be interesting to see how that plays out.

It also plans to deliver “clearer ranges and real choice in order to make … purchasing decisions simpler and quicker.” That must also be good news as the huge number of different sub-brands can be very confusing and store layout also makes them hard to find.

We will address this by reducing the number of products we sell in our Autumn/Winter ranges, stripping out duplication and buying with greater depth and authority so that we have a strong offer in all our stores regardless of their size,” the company said today.

It added that it would make the stores easier to shop “by reducing the level of co-ordination [not quite sure what that means] and help customers by inspiring them with selective and impactful outfit merchandising, which will give us more flexibility to trade the seasons and trends. Underpinning all of this will be an investment in service.”

M&S said the changes wouldn’t happen overnight, which is a shame as nearly two decades of failed turnarounds mean some investors are probably losing patience.

What’s missing?

I would have liked to see a commitment to reviewing its store estate too. there are just too many stores and they’re too big. Look at rival John Lewis. It has less than 50 department stores and nearly 350 Waitress supermarkets. M&S has nearly 900 UK stores in total. While M&S said online growth is slowing, John lewis is looking forward to online being a bigger channel than physical stores any day soon.

I’d also like to see M&S not chasing headlines with lines like its Alexa Chung offer but more launches like its Kestin Hare menswear and having more confidence to back its style statements. In the past it has introduced key trend pieces but made so few of them and made them available in so few stores, it has simply annoyed customers who couldn’t get hold of them.

Waiting lists and a “too late you missed it” approach might work for the luxury sector but for M&S? Not really.

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