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Marks & Spencer: apparel retail dressed for success?
Marks and Spencer is one of the oldest names on the UK high street, with a reputation among consumers as a dependable but slightly staid retailer, ideal for those middle-aged, middle-income clothes shoppers who don’t want to embarrass their children by dressing inappropriately. But its FY2014 financials released today (May 20) show falling profits, as a core revenue stream continues to perform less strongly than hoped.
The company’s two main segments are food and general merchandise, the latter largely apparel plus some homewares. Over the 2012-2014 period, its UK food sales rose, and now account for 50% of total revenues. General merchandise, however, declined in 2013 and stagnated in 2014. The result was a fall of 3.9% in underlying profit before tax.
Many retail analysts focus on Marks and Spencer’s apparel offering as key to its mixed performance. According to one commentator “the branding and the demographic and age profile of its target customer remains unclear”, another bemoaned “ a continued lack of vision and ambition on clothing”. These remarks worryingly echo those made in 2013: “M&S has repeatedly tried and failed to invigorate its fashion offering”, for example, or “It will […] take time before the new womenswear ranges resonate with customers”. And 2012 attracted similar comments.
What can the venerable retailer do to boost profits? The obvious answer would be to look afresh at its apparel business, especially womenswear. This has in fact been a management focus over the past 12 months. For example, fabrics have been upgraded with more use of luxury materials such as cashmere and silk; and two new Sourcing Directors have been hired, based in Asia-Pacific, and tasked with improving the supply chain. The Leading Ladies marketing campaign features not only celebrity models, but also women notable for their achievements outside the world of fashion. This does seem to be paying off, with General Merchandise returning to growth in Q4 of FY2014 after three disappointing years.
There are also grounds for optimism in the performance of the business outside its core UK high street operations. Both international and multi-channel (online) sales increased during 2012-14, at annualized rates of 5.6% and 19.5%, respectively. Marks and Spencer has invested significantly in multi-channel, with a new e-retail portal, a new distribution center, and the launch of a system by which customers can opt for picking up their orders in-store as well as home delivery.
Also, the company now has 455 non-UK outlets, and has seen particularly strong sales growth in Asia (15.7% y-o-y). It is surely correct to identify India and China as target markets. Its brand identity as a seller of good quality products for less price-sensitive customers, rather than as an ultra-low-price competitor to Primark et al, will endear it to China’s rising middle class.
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