With M&S shareholders reportedly warning that the retailer faces “headaches” over its portfolio, could new boss Steve Rowe shutter stores?
A radical overhaul of the Marks & Spencer portfolio is needed as in today’s omnichannel retail market it simply does not require as many stores to service its customers as it has done in the past.
We estimate that up to 25% of M&S stores could be closed with little impact on its market share but a substantial positive impact on profitability, given the costs of operating an M&S store.
M&S make significant profits from two key formats: large out-of-town stores, and Simply Food c-stores.
Conversely, smaller, poorly configured stores in mid-tier towns – a category that still represents the majority of its portfolio – contributes comparatively little to the retailer’s bottom line.
This illustrates how polarised M&S shoppers are in that Simply Food tends to service its younger, urban, time-pressured customer base, while out-of-town stores attract car-borne, family-oriented customers.
While the move to out-of-town continues, it is fraught with political difficulties to negotiate. The loss of an M&S from a town centre, regardless of the profitability of the store, tends to create a lot of negative sentiment locally.
Regardless of this, however, it is a move M&S needs to continue to make if it wants to increase profitability in the longer term.
In addition to the size and configuration of the store portfolio, another major issue for M&S is its clothing offer – and the continued loss of market share to competitors such as Next and fast-fashion businesses including Zara and H&M.
M&S currently has too many confusing and conflicting product lines and sub-brands, particularly in womenswear.
Streamlining is needed, while celebrity or designer collaborations, which have been so successful for H&M, would be a welcome addition to create more buzz and interest, and drive footfall into the clothing sections of their stores.
The key to success is for them to create a more seamless link between the M&S food customer and the M&S clothing customer.
Currently, in terms of quality, design and even visual merchandising, the two seem very different.
A substantial rethink is needed in order for M&S to remain relevant in today’s fast-moving, ultra-competitive retail sector.
- Jonathan De Mello is head of retail consultancy at Harper Dennis Hobbs