Marks & Spencer (M&S) is navigating a comprehensive overhaul of its operations as it seeks to solidify its recovery in the competitive retail landscape. Archie Norman, the chair of the company, highlighted the delicate balancing act the organisation faces, stating, “We have a plan but it’s a high wire act and we have got to keep both feet on the wire.” The company experienced significant growth in the past year, marked by a 40% increase in its share price and gains in market share across both food and clothing sectors. However, Norman emphasised that there remains much to accomplish.
In a strategic move that precedes the anticipated festive trading statement due this Thursday, Norman indicated that despite recent successes, the company is far from achieving its goals. Since Norman joined M&S seven years ago, he has played a pivotal role in revamping the retailer. The company has implemented substantial changes, particularly in the food sector, including the acquisition of its distribution partner, Gist. Continuing this trend, M&S is currently revitalising its beauty and childrenswear lines, rebuilding its homewares range, and enhancing its international operations, with the aim of evolving the department store concept to match competitors like John Lewis.
Norman noted, “We think keeping the spirit of the turnaround is essential because it takes a long time to irreversibly change a business.” With looming conventional expectations of a nine-year term for Norman, it is a crucial time for M&S as it attempts to fortify its progress.
Stuart Machin, who became CEO in 2022, has overseen significant structural changes, including the closure of over 50 outdated stores and the modernisation of a quarter of its estates. Anticipated pre-tax profits for the current financial year are expected to reach approximately £840 million, marking the company's best results in over a decade. The retailer predicts food sales growth of 7.8% for the final quarter of 2024; however, growth in clothing and homeware sales is forecasted at just 0.7%.
M&S has emerged as the UK’s leading seller of fresh Christmas turkeys and festive knitwear, holding a considerable share of the market for underwear. Recent adjustments, particularly in addressing consumer preferences for affordable essentials alongside innovative products, have equipped M&S to navigate a challenging market climate.
The latest figures from Kantar report food sales rising over 10% in the three months leading to 1 December, outperforming major competitors such as Lidl, Sainsbury’s, and Waitrose. In clothing, M&S has boosted its market share to above 10% by introducing smaller-sized womenswear and lingerie to cater to younger consumers, particularly those in their 30s and 40s, who are reassessing the brand.
Machin acknowledged the historical fluctuations in M&S's turnaround efforts, stating that there is a need for a distinct approach this time. He has committed to embedding transformation strategies throughout the organisation. His leadership reflects a cultural shift towards transparency in identifying and addressing business challenges.
Product enhancements are underway across various categories, particularly menswear and childrenswear, where M&S previously underperformed. Patrick O’Brien, a director of retail research at GlobalData, commented on the transformation within clothing, noting, “Clothing is almost unrecognizable, it is so much more contemporary.” M&S's adherence to design principles has resulted in more competitive offerings in menswear.
In reassessing its product lines, M&S has exited the large furniture market to focus on increasing its presence in soft furnishings, tableware, and kitchen items. A long-term initiative is also in effect to modernise the distribution framework, simplifying an ageing system which is expected to facilitate cost reductions, particularly in light of recent government announcements regarding labour costs.
Susannah Streeter of Hargreaves Lansdown posited that the operational and strategic modifications will enhance cash generation, thereby improving the retailer's overall health.
The retailer's ambitions are evident in its newly renovated store at Bristol’s Cribbs Causeway which showcases a modernised department store model with expansive offerings including a wine shop, deli, and sections for fashion and homeware that feature eye-catching signage. This £21 million redevelopment signals M&S's competitive stance against rivals like John Lewis and Waitrose.
Adding to its food portfolio, M&S has introduced 1,500 new products in the past year, bringing its total food lines to 6,500. Retail analyst Jonathan Pritchard from Peel Hunt noted that M&S's Innovation Hub for new products positions it ahead of competitors in quality, enhancing its value proposition.
In efforts to bolster its food retailing, M&S has increased its fully owned food-only stores from 261 in 2017 to 325, with ambitions to reach 420 by 2028, targeting larger food halls to accommodate weekly shopping needs. Simultaneously, M&S is reducing its full-line store count significantly, with plans to close as many as 80 locations while introducing new food-only sites.
Despite facing challenges such as the ongoing disputes with Ocado regarding delivery performance payments and a recent decline in international sales, Norman maintained an optimistic outlook. He concluded, “I do believe that we have shown the opportunity of making M&S a great business. The critical thing now is to create a growth business. We are in a very strong position to achieve this and we have a plan.”
Source: Noah Wire Services