Marks and Spencer new strategy is not to expect early delivery
Steve Rowe, the new chief executive of U.K. high-street stalwart Marks & Spencer, wants to revive growth by focusing on retail basics. All very sensible, but investors might wonder what is really new in his strategy.
M&S’s problems in clothing resemble grocer Tesco ’s in food: it is the largest player in a fragmenting market; years of declining like-for-like sales have left it with too much floor space; it no longer knows what its brand stands for.
Like Dave Lewis at Tesco, Rowe is responding by cutting prices in key lines, simplifying the offer and getting more staff on the shop floor. The underlying ambition is to drive growth in sales volumes to justify store overheads and get a better deal with suppliers.
But selling groceries is a local, everyday business; fashion retail is more diverse and global. The risk is that Rowe buys in a little growth, but doesn’t address the core problem of M&S’s fading relevance.
Even by management’s own timetable, the recovery is likely to take a long time. Mr. Rowe’s strategy accompanied a profits warning that sent the shares down 9% on Wednesday. He expects no improvement in the sales trend in the current year through March, implying ongoing like-for-like declines of almost 3 % for the clothing and home-wares division.
The bearish outlook is a change of tone, given the company’s record of over-promising. But it also tallies with recent updates from key competitor Next, which has issued three growth warnings this year and talked of a consumer “slowdown”.
Rowe is doing what he can. But given the discouraging market backdrop, and a history of false dawns for M&S’s clothing division, investors, like shoppers, can afford to wait and see.
Strategic update summary:
Focus on putting customers at the heart of M&S and driving sales growth.
Implementing actions to recover and grow Clothing & Home:
– Re-establish style authority: focus on product, quality and fit
– Restore price position: lowering prices and reduced promotional stance
– Enhanced customer experience: sharper ranges, better availability and investment in store staffing
Continuing to grow the Food business:
-Build on strengths: focus on innovation, quality and choice
-Commitment to value credentials: competitive pricing while maintaining margin
-Improved convenience: extending Simply Food store opening programme
Driving profitability for shareholders:
-Continued tight control of costs and cash
-Focus on shareholder returns
Additional strategic questions, including International, UK store estate and organisation to be addressed in the autumn.