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Marks & Spencer targets new store concept in bid to drive growth.
Marks & Spencer targets new store concept in bid to drive growth.

Marks & Spencer targets new store concept in bid to drive growth

INTERNATIONAL NEWS

By Greg Richie - Oct 18th, 10:18

For a taste of CEO Steve Rowe’s ambitions to transform Marks & Spencer Group (M&S), look no further than its newly refurbished shop in London’s Clapham neighbourhood.
 

The store looks more like a Whole Foods Market than one of the 135-year-old British retailer’s more traditional outlets. Alongside piles of avocados and herbs grown with the help of artificial intelligence — there are three kinds of basil — it features a wood-fired brick oven coated with glittering mirror tiles like those on disco balls.

What is absent is just as important: The clothing that has been a mainstay of the retailer’s large outlets for decades but has become a tough sell, hampering its turnaround efforts.

M&S, an institution in the UK, is threatened from all sides. Its business of selling both clothing and food has exposed it to competition from the likes of Amazon.com as well as fast-fashion chains such as Zara and discount grocers like Lidl and Aldi.

Because of a shift towards online shopping and a Brexit-related slump in consumer confidence, UK retail is deep in a funk that has prompted chains like Debenhams and House of Fraser to shut dozens of stores. In September, M&S, one of the original members of the FTSE 100 index, was kicked out of the stock benchmark for Britain’s biggest companies.

Comfort zone

The new store moves the company beyond the comfort zone its food business has occupied until now — offering niche items and lunch fare like hoisin duck rolls that aim to make grocery shopping more exciting than a trip to the supermarket, at prices accessible to a middle-England clientele. The company jazzed up the Clapham site further with services such as wine and coffee experts, setting it apart from M&S convenience stores.

The new style reflects a strategy that Stuart Machin, M&S food MD, calls “protecting the magic and modernising the rest.” The company plans to open several similar stores before the end of 2019 to test whether they can turn around its fortunes.

The stock has lost more than half its value since 2015. The clothing arm has suffered a long decline as it failed to stay as nimble and cheap as rivals. As clothing revenue shrinks, M&S now gets almost two-thirds of its sales from food.

With the new, larger stores, M&S is trying to change a perception that it is just a convenience retailer “for tonight,” wrote Barclays analyst James Anstead. Analysts at Numis Retail, meanwhile, called a new partnership with online food seller Ocado Group “the single biggest source of potential value creation” for M&S.

Even the food segment has suffered setbacks, though. M&S expects to close around 25 smaller Simply Food stores, as well as a further 85 full-line stores this financial year as it reorganises the business.

Share slump

The shares have sunk further on concern over the company’s plan to finance the Ocado venture. M&S has also endured an exodus of top managers, with the head of clothing departing in July and CFO Humphrey Singer resigning last month.

Berenberg analyst Michelle Wilson said the changes would not take hold immediately. “M&S is undertaking the necessary restructuring,” she wrote. “But until that transformation is complete, it is fighting with one hand tied behind its back against more agile peers.”

Rowe, a three-decade veteran at the retailer, has a tough boss: chair Archie Norman, who joined in 2017 and is known for a no-holds-barred turnaround of grocer Asda.

The CEO acknowledged at a recent investor meeting that the transformation of the M&S clothing and homeware business — which generates about half of its profits — is about 18 months behind schedule. While the picture is rosier in food, Wilson questioned how much of a recent improvement in volume has been driven by price cuts.

Fighting for market share in a cut-throat retail sector filled with online, discount and fast fashion incomers has left M&S looking “increasingly isolated,” say HSBC analysts Paul Rossington and Andrew Porteous. If one of Britain’s most historic brands is to thrive once more, it’s going to have to entice a new generation of shoppers through its doors — and not just in Clapham.
Business Live 

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