TWEEDLE DUM, TWEEDLE DEE OR SOMETHING DIFFERENT?
Since I started the blogs to stimulate discussion on issues raised in the text I have always tried to take a longitudinal view of their contribution. In other words I like to revisit and expand on earlier blogs about issues and retailers.
That “hardy annual” UK retailer, Marks and Spencer is always worthy of revisiting and revising. I was tempted to go back to this retailer recently when I saw that clothing sales had experienced an increase at the end of 2016. This suggested that perhaps it had reversed the seemingly irreversible downwards trend in recent years: where food sales gradually overtook clothing and home sales.
More recent figures published in July however suggested a slight decrease of around 1 to 2 per cent (depending on whether they were based on like-for-like sales or adjusted.
As we know statistics can be “bent” to suit a particular narrative and Marks and Spencer is no exception.
On the one hand the CEO, Stephen Rowe was delighted with the clothing and home performance particularly as sales in this category appeared to increase by 7% if full price was taken into account. This meant that the role of discounting and promotions played a lesser role in stimulating sales (clearly a positive feature). In the past couple of years Marks and Spencer has been criticised for an over-reliance discounting.
That said, overall clothing sales still declined in spite of some favourable underlying conditions in the first quarter of 2017. For instance Easter fell later in the year than usual, the Eid festival took place earlier in the year and the prevailing weather conditions in the UK during Easter and early summer were favourable and conducive to encourage shoppers to spend money on summer clothing.
You may have noted from an earlier blog of mine on Marks and Spencer that I have put forward the notion that it should consider the nuclear option of pulling out of clothing and focusing instead on the food sector. I am not alone in this view although I fully recognise that it is a controversial view and one that is likely to be torn apart by many retail commentators and so-called experts.
My argument in that earlier blog was based on the view that the clothing sector has changed out of all recognition to the climate faced by M&S back in the 1970’s and 1980’s. Much has happened to irrevocably change the business models and way of doing business in the clothing sector. The main change has been driven by pioneers such as Zara and H&M who have revised the way of doing business: creating a fast-fashion and fast supply chain system that provides the shopper with more variety at lower prices than could be sustained by the more inflexible and traditional models (four fashion seasons, slow supply chains and decisions made a year to eighteen months in advance of the particular season).
We have also witnessed a polarisation of retailers operating at both ends of the spectrum: high price and quality versus low price at an acceptable quality level. As we discuss in chapter six of the book a retailer in the fashion sector does not want to be seen as a “piggy in the middle”. Mid-range, mid- level retailers have consistently struggled to make an impact. This is based on the simple view that if you are caught in the middle it is next to impossible to develop and sustain a relevant point or points of differentiation. This is what has happened to M&S in my view, within the fashion sector. It has tried numerous launches and re-launches such as the Autograph collection, Indigo, Collezione and North Coast labels. None of which has made any significant impact as regards turning around its fortunes in the fashion sector.
It has also struggled to carve out a relevance for younger shoppers, arguably the most vibrant and lucrative segment of the fashion market. It is still seen by many such young, professional females as a retailer that sells items that only their mother or grandmother would wear. This is analogous to throwing a party in your flat and inviting your friends as well as their parents and grandparents along to!
The other irreversible trend over the past fifteen years or so has been the emergence of the supermarkets in the fashion sector. They too have created ranges of clothing that are of an acceptable quality and at a low price. This has been very attractive for many categories of shoppers (low income, families and so on). Their growing significance has also been exacerbated by the prolonged recession since 2007 and the continuing decline in real incomes generated by pay freezes in the public sector in the UK.
Marks & Spencer has experienced more success in the food area however. Currently 60% of its revenue comes from this area and only 40% from clothing and home categories.
There has been an inexorable trend towards changing the direction of M&S. For instance in late 2016 it announced that it would be closing over eighty of its stores in the UK. This could be interpreted as an admission that in the longer-term it needs to reduce its involvement in fashion.
Of course it could also be argued that it is a recognition that there is a need to eliminate physical space from the retail operations and focus instead on online channels.
I would argue that M&S has successfully carved out an identifiable and recognised niche in the area of food. Whether this has been by accident or design is a moot point. However in any event it has bought into the “changing behaviour of consumers in the past decade. Let’s take a simple case in point.
Many of us do not work in the conventional ways in which our parents did. Do we work from nine to five each day with a lunch-break of an hour in between? Of course not. Even in the bureaucratic public sector, people and organisations adopt a much more flexible position. People work from home or they come in early and nip out for a sandwich at 10am or 10pm. Food on the go has become the norm for many people. It is here that M&S has done well.
It produces an innovative (and changing) range of popular food items at levels of high quality ant mid t0 high price points. This has given it a clarity and relevance that is totally missing in this clothing and home categories.
We should also note that the food sector by far exceeds the clothing sector in the UK. In the case of food (including alcohol) it was estimated to be worth £114 billion in 2014. By contrast the clothing sector was worth around £63 billion. This might suggest that in the longer-term greater opportunities arise to capture more business in the food sector.
While this sector is still very competitive (with specialise food operators such as Sub Way and Pret a Manger to the fore), I argue that M&S has a clear positioning strategy in focus.
Does it really need the baggage of trying to also compete in the fashion sector? In some ways this is analogous to an elephant trying to compete with a gazelle in the running stakes. With the move away from large format and “large space” retail operations, surely it would be better for M&S to direct their innovatory approaches to delivering food options in much smaller physical spaces? The virtual space? Or through other operators such as petrol and service stations? In fairness this is what they have been trying to do in the past few years. By divesting from high-cost physical spaces it can become more nimble and flexible in anticipating and responding to changes in the environment.
Of course as long as the clothing and home sectors still remain somewhat profitable, the decision to divest would be a difficult and potentially painful one for senior managers.
However I would end by observing that the heritage of M&S is to be found in the food area. When it opened as a bazaar in Leeds in 1864 it did so as a food operator. It did not sell clothing until after the First World War.
Let’s continue to monitor M&S to see the next instalment in the story!