Tesco and Marks & Spencer’s must undergo dramatic change as the UK retail scene adjusts to hard discounters and online challenges.
How the mighty have fallen. No, I’m not talking about Tesco’s implosion, but the dramatic overall changes in the retail financial world since the millennium.
In 1998 the quoted non-food retail sector was dominated by 10 companies accounting for 90% of the total value. The dominant giant was Marks & Spencer, with 20% of the sector’s value and a market capitalisation of £10bn.
Only the names hadchanged in some cases – Kingfisher (Woolworths, B&Q etc), Signet (Ratners), Storehouse (BHS, Mothercare). The one exception was Next, a relative upstart dating back to only the 1980s, dismissed at the time as a big competitor to M&S because its total sales only amounted to what M&S turned over in one store – Marble Arch.
Then, Next was valued at only £2bn. Today it is over £10bn, while M&S has fallen back to under £7bn.
The top 10 now account for no more than 75% of the total value, and of the 42 quoted non-food retailers around half are ‘new’.
How different might retail history have been if Philip Green had not been thwarted by Stuart Rose? Philip’s audacious bids for M&S essentially failed for the simple reason that he was characterised as an opportunistic outsider aiming to capture a jewel of the establishment on the cheap.
We need mavericks like Mike Ashley and The Range’s Chris Dawson to shake the retail tree. Happily, despite now being very much an establishment figure himself, Philip has managed to retain his hunger and retail skills.
Much is explained by the inertia and complacency which almost inevitably afflicts large organisations, typified by M&S ’s initial response to Next,
Inevitably I see Tesco today in a worse position than M&S found itself in during the late 1990s.
It is a victim of inertia , complacency and overexpansion, compounded by accounting problems and the fact that it is not ‘loved’. In contrast M&S has always enjoyed the affection of its customers. Is there a latter-day Philip Green out there waiting to pounce?
Tesco boss Dave Lewis must cut through the complacency and bureaucracy to recreate a dynamic retailer with a passion for giving its customers what they want.
Easier said than done. Philip’s original recipe for M&S – Project Mushroom, a strategy on which I worked with him – involved rationalising its retail footprint, downsizing the retail portfolio and benefiting from what I have termed ‘reverse cannibalisation’.
It is a strategy successfully employed by Next, Signet and Arcadia in the aftermath of their respective stumbles.
However, with the grocers’ fixation on market share this would be a painful route for Tesco to explore.
Revolution rather than evolution seems to be required as the industry comes to terms not only with the hard discounters but online challenges.
- John Richards is an independent retail consultant and non-executive director