Questions raised over Rowe’s turnaround plan

M&S reported that clothing and homeware sales had fallen 2.9% on a like-for-like basis for the 53 weeks to April 2, citing “challenging trading conditions” and “underperformance” that led to a fall in market share.

Rowe said he would return the struggling general merchandise division to growth with a turnaround programme focusing on product, quality and fit, lowering prices, reducing promotions, sharpening ranges, improving availability and investing in store staffing.

However, the new CEO, who took over from Marc Bolland in April, warned that the implementation of the plans would hit profits in the short term.

M&S’s share price fell from 417p to 403p following the announcement.

The response from analysts ranged from cautiously welcoming to negative.

“The full-year results come as no surprise following poor quarterly performances in M&S’s general merchandise division,” said Honor Westnedge, lead analyst at Verdict Retail.

“Today sees the new CEO take to the stand to reveal his strategy to return M&S to growth and regain its position in the market – a tall challenge given the retailers’ share of the UK clothing market has been eroded year on year, falling from 10.5% to 8.7% between 2010 and 2015.”

Westnedge said she welcomed the announcement that Rowe is willing to take a short-term hit on profitability in an effort to restore turnover growth.

“It’s an essential action, which his predecessor was unprepared to implement. Investment in price, product quality, availability and customer service is a message we have heard before from M&S, but the sacrifice of profitability signals a stronger commitment this time round.”

“It hopes to slim down its clothing offer further and reduce duplication across ranges to remove shopper confusion. Again, this was addressed a few years ago but under Rowe’s new management structure and shift in its buying strategy – buying by product category, not by sub-brand – issues of repetitiveness across collections should be prevented. Although communication between product buying teams is vital to ensure final ranges are coherent and the sub-brands target their core customer segments.”

Westnedge predicted that initial sales improvements should filter through in M&S’s half-year results in November.

Phil Dorrell, partner of retail consultant Retail Remedy, said improving the customer journey was essential to increasing sales. 

“The quality and value for money of the clothing should not be in dispute, but the customer journey to discover it is fraught with confusion and blind alleys as the shop floor is navigated. Trying to find your tribe within the tangle of sub-brands has driven many customers to follow a trail of breadcrumbs back to the shop door.

“Rowe has identified this and is planning more focused ranges and deeper, more authoritative buys that also address the issue of availability of key pieces in smaller stores. Adding improved customer service into the mix gives M&S back the part of its proposition that has been failing. He just needs to deliver it now. There is a real possibility that it can return to the retail powerhouse of our distant memories. But we’ve known that for some time, and still we wait.”

Ernesto Bisagno, vice-president and senior analyst at credit rating agency Moody’s, said: “M&S indicated that market conditions continue to be challenging, which is line with our view that profit growth could decline in the next 12 to 18 months for the UK non-food clothes retail sector as a whole, as a result of weaker clothing sales and declining consumer spending.”

“Although we expect further margin improvements in 2016/17 in line with management’s guidance, we expect additional pressure on M&S’s profits from the weak consumption on clothing and increased focus on lowering prices, although the latter could provide some support to sales as M&S aims to win back more customers.”

Nick Bubb, independent retail analyst, said: “It is a bit disappointing that, although the future focus of the business will be on ‘the customer’, it is not clear who Steve Rowe thinks ‘the M&S customer’ actually is. Furthermore, the key decisions on how much UK store space is needed for clothing and homewares, relative to food, have been put off until the autumn.”

Springboard marketing and insights director, Diane Wehrle agreed that M&S needs to focus on who its target shopper is.

“Marks and Spencer’s results highlight the challenging issue they have as a retailer of really understanding who their customer is. Plans to re-establish their price positioning and focus on ’wearable, contemporary style and unbeatable wardrobe essentials’ will define their audience but does run the risk of hitting the middle-ground or potentially entering BHS territory if it doesn’t deliver on the promise of improved ’fabric, fit and finish’.”

Andrew Mulholland, managing director at brand agency, The Gild agreed.

“M&S needs to simplify its clothing offering and cut the sub-brands- Per Una, Autograph and the like – all these do is dilute and distract from the brand’s core offering. Shoppers don’t go to M&S to have an H&M experience, so they shouldn’t be trying to compete in this space. It also needs to place more focus on quality – currently its clothing offer doesn’t punch above Uniqlo. M&S has a place in our national hearts and homes; we will be poorer off if it can’t secure its future in this increasingly competitive world.”

Connor Campbell, a senior market analyst at financial spread betting firm Spreadex, said the results were a “bitter pill to swallow”. He said the news that ”improving quality will have an adverse effect on profits hit shares” was particularly unwelcome, “undoing the gains made in the past few weeks following Rowe’s reshuffling of senior management”.