Marks & Spencer’s Turnaround Strategy, Why it’s Working
Keeping up with the times is difficult especially when you have been in business for over a century like Marks & Spencer has been. But despite claims that it can’t turn things around Marks & Spencer is proving it’s too soon to count it out. Marks & Spencer is in the midst of a multi-year transformation that former CEO Steve Rowe began in 2018 and it’s working. Marks & Spencer’s revenues last year were up 21.5% representing the fastest growth in at least a decade and sales so far this year have been strong. “The business has moved beyond proving its relevance and has the opportunity for substantial future growth,” says Rowe.
If you are curious about what is behind Marks & Spencer’s new found success then consider these four elements of its strategy.
1. Bringing in more third party brands. Throughout its 137 year history Marks & Spencer has primarily sold its own brands. But in 2020 Marks & Spencer opened up its website to outside apparel brands. In a small pilot that took place in October of 2020, where Marks & Spencer sold womenswear brand Nobody’s Child on its website, Marks & Spencer found that close to 10% of customers who bought the brand were new to Marks & Spencer womenswear. After the success of that collaboration Marks & Spencer added even more outside brands to its website to compete better with the likes of online retailers like ASOS and Boohoo.
Marks & Spencer now has about 40 brands on its website across its clothing, home and beauty categories. Some of these brands include: Hobbs, Joules, Phase Eight, Seasalt, Jack & Jones, Jaegar and Triumph. When a retailer is over a century old it’s hard to stay relevant. Many people saw Marks & Spencer as a retailer who sells frumpy clothing. Adding third party brands is an effective way to update Marks & Spencer’s brand perception without alienating existing customers.
This approach of creating an online marketplace with third party brands is one that retailers like Amazon have used with great success. In many of these arrangements the retailer hosts the marketplace and instead of buying the inventory from the brand the brand is responsible for it and a retailer like Marks & Spencer pays a commission on every sale. That means if there is slow moving merchandise the retailer doesn’t have to worry about taking markdowns to sell the inventory. It also allows a retailer to have a much larger product range without having to make a large investment to buy and hold more stock. 57% of Amazon’s unit sales in come from third party sellers on its platform.
Marks & Spencer has said it started out with third party brands flowing through its distribution network but it is planning to give sellers the flexibility to use a drop ship model where the brand holds onto its inventory and fulfills the order itself. “M&S’s focus on third-party brands has taken its clothing offering in a good direction. This is especially the case with Jaeger,” said an industry veteran. “This brand is of a higher price point compared with most of M&S’s own-brand clothing. It shows that M&S can confidently present relevant product to a more premium customer.” “M&S has put more thought into what the customer wants. It has focused on the 'eye appeal' and led with a more commercial palette. This is a marked difference when compared with the palettes of bizarre colours [it had] in previous years.”
Pippa Stephens, a retail analyst at GlobalData echoed that sentiment when she said: “while clothing and home has formerly been M&S’s main handicap, it has now seemingly turned a corner in its overhaul.” “As well as revamping its own-brand clothing ranges to be trendier and more inspiring, the incorporation of popular third-party brands such as Nobody’s Child and Ghost has also helped it to acquire new customers.” “These more-appealing ranges will have allowed M&S to significantly reduce the proportion of products being discounted, driving full-price revenue to grow by 45% on a two-year basis [in the 13 weeks to 1 January 2022].”
2. Brining groceries online. Marks & Spencer started selling food online in September of 2020 through its partnership with Ocado. Ocado is an online grocer and Marks & Spencer paid £750 million for a 50% stake in Ocado’s UK retail business in 2019. The partnership has already started to bear fruit with Marks & Spencer’s food sales up 10.8% last year.
Marks & Spencer was also the fastest growing food retailer in Britain in the three months up to December 4th, 2021. During that period, Marks & Spencer’s food sales grew at a rate of 9.1%, while Lidl’s and Aldi’s food sales grew at a rate of 8.3% and 4.6% respectively. Last December 30% of the food in customer’s baskets were from Ocado. "Marks & Spencer may have been late to the grocery e-commerce party, but arriving with Ocado in arm, it's muscled into a prime spot on the dance floor, and is enjoying the hits", said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
Selling groceries online has also helped Marks & Spencer attract younger customers. Marks & Spencer plans to lean more into its food offerings in the future.
3. Right sizing its real estate portfolio. Marks & Spencer is planning to close 32 full line stores which is an increase over 68 full line stores Marks & Spencer has closed over the last several years. Then another 30 full line stores will be closed over the next nine years. That’s a total of 130 full line store closures. But Marks & Spencer plans to open 15 new full line stores and 40 new food stores over the next three years as it shifts its focus from clothing to food.
"We are now developing a growing pipeline of store relocations, moving from old multi-floor buildings, often with challenged fabric and poor access and car parking, to modern, well-located sites wherever possible in the renewal format with omni-channel capability,” said Marks & Spencer. "The full-line store pipeline already has around 15 new stores planned over the next three years, including seven former Debenhams sites.”
This is part of Marks & Spencer’s strategy of "moving with the customer, where the customer is working and shopping" said Rowe. "We are committed to stores and believe they can be a true source of competitive advantage." "But they need to be the right stores, in the right location, with the right services," said Rowe.
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4. Improving Digital. To attract more digital customers Marks & Spencer has deployed shopping features like scan & shop as well as click and collect. It is also focusing on improving the customer experience across its website and app. “We know that customers with multiple digital touch points are the most loyal and spend the most with us. It will give them more reasons to shop at M&S,” said Katie Bickerstaffe, co-CEO of Marks & Spencer. 40% of Marks and Spencer’s clothing and home sales are bought online now demonstrating that its digital transformation is working. Approximately 22% of Marks & Spencer’s clothing was sold online prior to the COVID-19 pandemic.
Marks & Spencer also has more than 100 websites reaching customers in places as far away as Iceland and Uzbekistan. "Our international business has seen strong online growth since the start of the pandemic as increasing numbers of customers choose to shop through our range of flagship websites," said Paul Friston, international director at Marks & Spencer.
Many retailers have found that having a strong digital business goes hand in hand with a strong store network. Consumers today want to choose how they receive their online orders and often they choose to pick up orders in person. While this may seem counterintuitive it gives customers more control. If you make an order online then you can simply hop into your car and sometimes retrieve your purchase faster than if you made the order online. For people living in apartment buildings they may elect to pick up their package themselves instead of worrying about the theft of a box left unattended outside of their apartment door. “People talked about the fact our store estate was an albatross around our necks,” said Rowe. “In actual fact, it gives us a platform for a really strong omni-channel business, and it’s the reverse, it’s going to be one of the strengths of the new digital business.”
"It looks like this long suffering high street stalwart has turned a sharp corner, proof that management's transformation strategy is paying off,” said Streeter. “Rather than a department store which sells food as an extra, Marks is metamorphosing into a grocery powerhouse which sells clothes and homewear as add-ons."