Marks & Spencer
Magic or menopausal?
The turnaround of Britain’s biggest clothing retailer has far to go
TWO paintings hang unobtrusively in a small conference room at Marks & Spencer’s headquarters in Paddington. One is a Monet riverscape; the other, by L. S. Lowry, a painter of England’s industrial north-west, depicts a town square. Marc Bolland, boss of the venerable retailer since 2010, sees in them a metaphor. M&S was coated with dust and yellowing varnish when he arrived. His is scraping those layers away to reveal the beauty beneath.
Many onlookers doubt he can. On May 20th M&S said underlying profit before tax in the year to March had dropped for the third year in a row, to £623m ($1 billion). Next, a rival with fewer stores and just one-third the sales, made more money in 2013. M&S’s share of the apparel market in Britain, still a lofty 11%, has declined steadily since the mid-1990s. To many Mr Bolland, a Dutchman with a background in supermarkets and beer, looks like the wrong man to woo shoppers back.
M&S has cultural as well as economic significance. “It is the British shop, as much part of our cultural heritage as the Women’s Institute, the BBC and the queen,” pronounced a column in the Daily Mail newspaper. That exposes it to the sort of abuse Britons often mete out to the institutions closest to them. A Telegraph taste-maker last year skewered a clothing line as “what a menopausal trade unionist would have packed as a delegate to conference in 1973.”
A style makeover is just the most obvious task facing Mr Bolland. He is grappling with what he calls a “15-year legacy of not investing” in technology and logistics. M&S employed no information-technology engineers and its international team spoke no foreign languages when he took over. Those are handicaps when your goal is to transform a chain of British shops into an international, multichannel retailer.
M&S has three problems that it cannot easily overcome on its own. The first is that its market share in clothing is still abnormally high. “It is difficult to find another retailer with that much share in its home market,” says Jamie Merriman of Sanford C. Bernstein, an equity-research firm. Second, shopping habits have changed and new rivals have sprung up to cater to them. Primark sells trendy outfits cheap enough to be worn a few times and then discarded. M&S’s promise of “quality and style” may be wasted on fast-fashionistas.
Finally, M&S sells its own sub-brands rather than labels that every shopper recognises. Lines such as Per Una and Indigo are supposed broaden M&S’s appeal beyond the 50-plus women who are its core customers. But they “don’t resonate with the consumer,” says Ana Santi of Drapers, a fashion-industry magazine.
Doubters were also gloomy about prospects for the firm’s other main business, selling food, recalls Mr Bolland. Yet M&S’s share of the grocery market and same-store sales rose for 18 consecutive quarters. It now gets more than half its revenue from food. That hints at what it can do in other merchandise, says the boss.
Yet the rag trade has little in common with the ragù trade. Bringing clothes from Asian factories to British stores involves supply lines that are more complex than those in the grocery trade, points out Tony Shiret, an analyst at Espirito Santo Investment Bank. Fashion trends are harder to anticipate than appetites. Mr Bolland has tried to fix how M&S buys and distributes clothing. A system based on independent “full-service vendors”, which designed the garments and held the inventory, is being scrapped. Now M&S plans to design the clothing itself and source it directly from manufacturers. That will help it respond more quickly to changes in demand, reduce markdowns and raise margins.
It is shifting some production from Asia to factories closer to home, which speeds up delivery and allows more experimentation with styles and colours. Dressing gowns are now made in Turkey rather than in Sri Lanka. A sprawl of 110 British warehouses is to become a sleek set of six, including a new one in Leicestershire dedicated to online shopping. This will cut the time needed to deliver a dress from port to shop from weeks to days.
Though late to e-commerce, M&S is now moving more boldly. It has swapped a clunky website using Amazon’s technology for one that marries merchandise to magazine-like content. M&S plans to offer later cut-off times for next-day delivery to make online shopping more enticing.
There have been hiccups—sales growth slowed on the new website and a planned distribution centre near London will now not be built—but all this should pay off eventually. Exane BNP Paribas, an investment bank, reckons that better logistics and sourcing will lift profit before tax by £65m a year by 2017. Profits from online operations will rise £100m. The “heavy lifting” is over, Mr Bolland suggested; M&S can scale back cash-draining investment.
Can the old master draw a younger crowd? Kayleigh Damen, a 28-year-old television producer, says that ten years ago she “wouldn’t have been seen dead” at M&S. Now, browsing the Pantheon store on Oxford Street, in central London, she spots “some young and trendy things”, including a “really wicked” pink jacket. M&S needs more like her.