Marks & Spencer to close 100 stores
You may have recently seen that high street stalwart Marks & Spencer is looking to close around 100 stores over the next 3 to 4 years. The doomsayers will say that the brand is in real trouble and that this is another sign that the “high street is dying”.
It did only post a £66M profit – which is a significant drop. However, as part of these figures it incurred £514M of costs due to its’ restructuring plan. So we need to consider underlying sales profits of the business of £580M.
While I do accept that this still leaves us with a 6% or so decline, we are nowhere close to the kind of HMV business collapse scenario the high street has seen in the past. To me this looks like organised operational change, with high street stores closing in favour of large department stores – and just as importantly accelerated online investment and sales.
Why do brands need to change?
Let’s look at the facts:
- Almost 1,500 high street locations closed in 2017.
- 643 coffee shops opened in 2017.
- Restaurants and pubs have been growing significant in February, March and April of this year.
- In-store spending has been on a gradual decline for years. Whereas online sales has been booming. In April online spending was up 13% compared to 0.5% growth for in-store expenditure.
Consumer behaviour trends are clear – people are favouring quality experiences and social activities over ‘just shopping’. People are also spending more and more online.
This creates an environment which is ripe for disruption and businesses without large bricks and mortar costs are able to offer better products at lower prices. Take a look at the online fashion retailer ASOS. Last year it turned over £1.9bn, twice what M&S generates online, and ASOS doesn’t have a physical shop you can visit. ASOS’s costs are lower and it has been disrupting the apparel market since launching in 2000.
The M&S response
In my opinion Marks & Spencer has been responding for years. Its’ online sales have doubled since 2011 to £836M last year. However, it still has rent to pay and increasing business rates. So shifting resources and marketing budgets to drive sales online allows it to compete more effectively. Online sales are a key growth area for M&S and, in reality, it needs to grow this area faster.
However, switching to online completely isn’t really feasible. Marks & Spencer has an annual turnover of around £10bn, so most of its’ income is in-store, and consumers haven’t totally abandoned the high street. So M&S is taking a structured and organised approach to reducing costs by closing under-performing stores and those in areas where it has outlets in close proximity of one another. This typically means closing some of the smaller high street locations.
By focusing on the larger department stores, they are able to also tick some of the social requirements consumers are looking for. Many of the larger stores have cafes for example. I should point out that M&S were well ahead of the game on this one. Their first café opened in 1935. They also attract great talent and the M&S staff members I know are offering consumers the quality shopping experience they are after.
Lastly, they have increased the diversification of services (mainly through franchise agreements). Some stores have opened or converted to their M&S Simply Food brand, for example. There is also the “M&S Simply food to go” brand which sells coffees and takeaway food. It is essentially capitalising on the growing consumer demand for coffee shops.
This strategy will allow the business to focus on core strengths, mitigate risks and re-allocate revenue toward marketing and customer experiences. This will help grow online revenues, improve in-store sales and provide further diversification.
So what next for brands?
Big brands need to face their immediate challenges head-on rather than cite them as reasons for failure when it is too late. Marks and Spencer is a great example of brand doing just that. The challenge for them now is how quickly they can execute on their strategy, and whether they can do this effectively before the next set of challenges come along – such as mass adoption of big data and AI perhaps?