“It is hard to argue that any company making more than £550 million a year (on an underling basis, at least) is broken but investors are clearly nervous about margin pressure in the food business and M&S still has to be careful to ensure that flat-lining profits do not lead to a slow decline that finally becomes a sudden, rapid fall.
Source: Company accounts, Digital Look, consensus analysts’ estimates. Year to end-March.
“As such, there are five things which Steve Rowe and his team simply have to get right and they have a good chance of sustainably boosting profits again if they do.
“Get the fashion basics right. Steve Rowe himself flagged today how M&S is still a leading provider in areas such as lingerie and denim. By doing these areas, and others such as schoolwear, well, M&S can still attract customers who may then buy elsewhere in the stores when they arrive.
“Go for style rather than fashion. As Coco Chanel once said, “Fashion comes and goes but true style always lasts.” At the moment the prints that M&S uses across its ranges make far too strong a statement and can be as much of a deterrent to customers as they can an attraction and a more classical approach would suit their demographic much better. A return of the company’s former knack of coming up with the ‘Piece of the Season’ that appealed to customers of all generations would also be a big step in the right direction. Former triumphs such as velvet shirts for women and killer cashmere cardigans show it can be done. Better still, successes such as these will create a buzz that is sorely lacking about the brand and ranges, keep stock turnover high and markdown low, to benefit of both the top line and margins.
“Focus on quality not price. M&S should avoid the temptation to get dragged down on price and ensure it stands out on quality. The result could be a hit to margin, but that may be the price of returning to top-line growth. The Rosie Huntington Whiteley lingerie range is proving a great success and while it may not be big enough to change M&S’ fortunes on its own, it shows what can be achieved by providing quality, stylish products which last and don’t fall apart within a season of having bought them. M&S must however do this through its own branded products or ranges such as Rosie rather than using external brands as previous attempts to use third-party names have never worked.
“Cut down on store space. It is interesting to see Mr Rowe decide to cut back on plans to expand the number of Simply Food stores and sanction another £48 million in costs associated with closing or writing down the value of certain sites. More needs to be done. Some of the big out-of-town sites could become a millstone and action is needed where possible.
“Get IT, online and click and collect right. This is the company’s chance to attract a more youthful customer and keep existing fans happy. M&S.com has had its teething problems but this is the best venue for offering a wide range of product rather than its bricks and mortar outlets. The company needs to offer free delivery and returns and click and collect to provide as many channels to market as possible.”