Marks & Spencer: counting every penny
Published:21-May-2009
By Staff Reporter
UK retailer M&S, which is celebrating its 125th year, announced that UK profits were down by 33% in the year to March 28, 2009. In order to regenerate growth and reinvigorate the brand, group finance and operations director Ian Dyson is leading a change program. Although this strategy is likely to prove Mr Dyson's credentials as a successor to Sir Stuart Rose, he faces considerable challenges.
Marks & Spencer's results for the year to March 28, 2009 were in line with expectations. Group sales grew by a marginal 0.4%, to GBP9,062 million, buoyed by international growth of 25.9%. However, UK sales were down 1.7%, to GBP8,184 million, despite a 5.6% increase in space. Group operating profits dropped by 29.4% to GBP768.9 million (in the UK by 32.9% to GBP652.8 million), with markdowns causing gross margin to decline by 1.7 percentage points, and UK operating costs increasing by 4.3%.
Some of this decline can be laid at the door of the recession. As the UK's largest clothing retailer, and with a premium food offer, M&S is bound to be affected by consumers cutting back on spending. Clothing dropped by 4.1%, and although progress was made in kidswear and lingerie, the larger categories of womenswear and menswear continue to cause problems for the retailer. This is despite the launch of the new womenswear brand 'Portfolio' and the simplification of brands within its menswear offering. Although M&S intends to clarify branding in store and communicate brand credentials more clearly, it should have been doing this all along - it has had clothing sub-brands for nearly a decade, but is regularly criticized for poor presentation and delineation in store.
Within food, the focus has been to rebuild the brand's value credentials, resulting in substantial investment in margin and a stronger promotional stance. However, overall food sales are down as consumers migrate to cheaper rivals such as Sainsbury. On a positive note, Marks & Spencer's online channel, M&S Direct, has reported strong growth, with sales up 34% despite tough comparatives from last year.
Looking at how it can generate sustainable growth, Marks & Spencer has reviewed its strategies to prepare more adequately for the future. Although there is little difference in overall business objectives, the emphasis is now on accelerating the pace of change through focusing on achieving operational excellence, speeding up the transition to becoming a multichannel retailer, driving the international business forward, and reinvigorating the brand through better communication with customers. In order to achieve these objectives, M&S has launched a change program called '2020 - Doing the Right Thing'. The initiative is being headed by Ian Dyson, who looks as if he is in line to take over from Sir Stuart Rose - especially as the other in-house contender, Carl Leaver, is moving on.
Although part of Sir Stuart's original strategy was to change the culture of the company (a strategy which he states has been achieved), M&S still appears to be chasing retail trends rather than setting them, as was once the case. The speed of change must accelerate fast if the retailer is to fight off greater competitive threats to its customer base from the likes of Sainsbury and John Lewis. If Ian Dyson can deliver on this aim then he will go a long way towards proving himself a worthy successor to Sir Stuart.
