Last week’s interims gave grounds for optimism that M&S is getting back on course, but the retailer is not quite there yet.

Marks & Spencer wants to drive growth through its multichannel strategy

Although Marks & Spencer chief executive Marc Bolland refused to say so himself, last week’s results were taken by observers as a sign that at last the bellwether retailer’s strategy may be starting to pay off.

While Bolland stuck to his mantra of a step-by-step improvement journey, the results were greeted by a big share price rise on the day.

The reaction surprised some, given that sales at the crucial general merchandise division fell once again over the period.

But profits came in ahead of consensus and there were signs, from the trend in womenswear performance to improved margin as a result of efficiencies, that perhaps the M&S supertanker is finally turning around.

Bolland remained cautious but maintained: “Things are now coming together.”

Fashion

Apparel performance, especially of womenswear, has been at the heart of M&S’s difficulties in recent years.

The retailer faced complaints at one extreme that its lines were too dowdy and unappealing to a younger generation of shoppers and, at the other, that it was alienating traditional shoppers by chasing the latest trends and offering too few sleeved dresses.

General merchandise boss John Dixon and style supremo Belinda Earl  were charged with putting things right and there is evidence that their efforts are winning customers over.

While clothing sales slipped 2.2% like-for-like in the first half, that partly reflected warm September weather that had a 1.3% hit on performance. In the first five months of the half, excluding September womenswear sales rose 1.3%.

Bolland said shoppers are telling the retailer that “M&S has got it style back”. M&S also said it had delivered an improvement in full-price sales, indicating that it was delivering the style, quality and value that consumers are willing to pay for.

While M&S may be turning the corner, it has not yet navigated the bend according to Cantor Fitzgerald analyst Freddie George.

He said: “We continue to believe it will take a number of seasons before the existing team is able to manifest a marked improvement in performance  in womenswear.

“There has been an improvement in the autumn/winter ranges but the branding, the demographic and age profile of its customer being targeted remains unclear.”

Stores

Just ahead of its results, M&S showed off its extended Westfield White City branch, which epitomises its ambitions for its stores.

“We now have an environment commensurate with product”

Belinda Earl

The shop features enhanced visual merchandising, with an emphasis for instance in fashion on outfit building and accessorising, and the introduction of new departments such as baby goods and clothing.

“We now have an environment commensurate with product,” Belinda Earl said on the Westfield tour. “I hope you can see a clear statement that we’re sending style down the chain.”

The retailer has adopted a similar womenswear approach in 70 of its top stores and elements of the Westfield look and ranges are in more of its shops generally.

The Rosie for Autograph range, for instance, is now in 284 branches compared with only 34 a year ago and 110 foodhalls stock the entire food offer – in September 2012 none did.

The in-store environment and availability are being improved at M&S but more must be done to ensure that the retailer’s wider estate incorporates more of the elements being deployed in the leading 70.

Business disciplines

M&S improved its general merchandise gross margin by 150bps in the first half, beating the original full-year target of 100bps.

For the full year the retailer now aims for a margin improvement of between 150bps and 200bps.

Enhanced margin was partly the result of being able to sell more at full price but also reflected, as does a lowering of operating cost guidance, efforts to deliver efficiencies.

“We will do more open to buy in the second half”

Marc Bolland, M&S

M&S has changed how it sources, guided by the Lindsey brothers – Mark and Neal – who previously won acclaim for making Next’s supply chain so effective.

The pair have helped M&S sharpen its sourcing by making the most of strengths such as buying power and rationalising the supply base where possible. Bolland flagged that the number of linen mills used by M&S has been reduced from 28 to eight.

He insisted that M&S was not “squeezing” suppliers and that some of them benefited from the new arrangements by winning more work from the retailer.

M&S is also being more fleet of foot by increasing its open-to-buy capabilities. Bolland said: “We will do more open-to-buy in the second half.”

The retailer can now respond to fashion trends in six weeks compared with “a few months” previously, and its strong relationships and volume business with suppliers mean they are willing to adapt to M&S’s needs.

Online

M&S now sees its website, rather than its Marble Arch branch, as its flagship store but M&S.com suffered a first-half sales fall of 6.3%.

The site was overhauled early in the year but the extent of the changes – including the need for shoppers to recreate their accounts – hit trade.

M&S insists that it was always recognised that the changeover would affect short-term performance but the scale of the decline worried analysts.

The retailer reassured last week that the online store “is on track for growth ahead of peak trading”. The view seems to backed up by the fact that the rate of sales decline slowed to 4.6% in the second quarter compared with 8.1% in the first.

Bolland said that the online business exited the half “almost flat” and that between the first and last weeks of the period the conversion rate was up 20%.

Food

M&S’s food treats remained the motor of the business in sales terms during the first half.

The food division posted its 20th consecutive quarter of like-for-like growth. They climbed 3.6% in total and 1% like-for-like in the half although there was a sharp slowdown between the two quarters.

Bolland said M&S had shone in a depressed food market and amid intense competition.

He was confident that M&S would continue to outperform the market because of its distinct offer, including the exclusivity of its range, the launch of innovative new products and its closeness to shopping habits.

40% of the retailer’s food shoppers, for instance, are buying food to eat that evening or the next morning, which plays into the retailer’s strengths in ready meals and convenience.

The retailer increased its target number of new Simply Food shops from 150 to 200 over the next three years.

Bolland said that new Simply Food stores were typically 10% ahead of expectations.

International

Overseas growth is a key plank of Marc Bolland’s strategy to position M&S for the future.

While international sales rose 1.2% on a constant currency basis underlying operating profit was flat as the retailer confronted a range of challenges such as continued tough trading in the Republic of Ireland and political instability and conflict in markets such as the Ukraine.

The retailer said it was pleased with consumer response to Simply Food openings in Hong Kong, Paris and Prague and that a new lingerie and beauty format had gone down well.

However, M&S’s international business clearly remains a work in progress. The retailer expects the issues which adversely affected it in the first half to persist in the second.