After smashing interim results expectations, Marks & Spencer chief executive Stuart Machin sees plenty of opportunity to keep up momentum across the board – despite unwelcome extra costs following the recent Budget.
Machin, who likes to adopt a “positively dissatisfied” mindset of continuous improvement, said the prospects for growth are what “energises” him and his colleagues, and is confident of a strong performance over the key peak trading period.
Value for money focus
The recent Budget brought a nasty surprise for retailers as they faced spiralling costs, particularly as a result of changes to National Insurance contributions and payment threshold.
In M&S’ case, those changes alone – a “double whammy” in Machin’s words – are expected to cost the retailer an extra £60m.
Machin is sympathetic to the new government’s situation, but M&S will need to find ways of mitigating the hit – “further investment in efficiency initiatives and automation will be needed,” he said.
The retailer has already embarked on a cost-saving programme, and will now seek more ways to cut costs. However, Machin is determined that customers should not bear the brunt of the extra expense.
He says: “We’ve got a good track record over recent years of absorbing inflation.
“It’s not easy, but we set out a £500m cost reduction programme when I became CEO. We’re on track with that, and what we want to do is look at those extra headwinds and see how we can also offset that with cost reductions.
“I want us to keep focused on fantastic product, fantastic value, and minimising that impact for customers. We’ve got the best value perception we’ve had in a decade. I do not want to risk that.
“We’ve got so much to do around supply chain, we know there’s some big cost-out opportunities. We still have very old systems. We still have manual distribution centres, we’re still playing catch-up on legacy stores and legacy distribution centres. When we fix that, we’ve got some good cost and operational efficiencies to take out.”
‘Fixing the backbone’ of food
M&S has achieved food market share volume and value growth for four years as it has improved food halls, focused on product quality and innovation alongside value, and enabled customers to do larger shops. That will continue.
For instance 1,000 products are being upgraded and 1,400 new lines are being launched over the course of this year.
However, improving efficiency and enhancing the supply chain will play a big part too, such as “obsessing” with availability.
Machin says: “Fixing the backbone of food plays a critical role in delivering our growth plans. We’re making good progress, but there’s more to do.
“You’ve heard us talk about, over recent years, the new food forecasting and ordering system. That’s now live in 90% of the range and will be complete by March next year.
“The team are doing a good job, working with our long-term partners, investing in capacity, and really trying to get ahead of the volume growth we’re experiencing now, but also in years to come.”
The food supply chain is also being improved following the 2022 acquisition of logistics partner Gist. Machin says: “With Gist, we have benefits to the integration but now we’re facing into what’s needed so we upgrade our supply chain network and expand our capacity for the years ahead.”
Building up GM out of clothing strength
After a long period in the doldrums, M&S has been back in style in clothing for some time. The retailer has notched up consecutive monthly market share growth in clothing for four years. It has addressed everything from improving style to bringing in complementary third-party brands and buying deeper in key lines, including tie-ins with public figures such as actress Sienna Miller.
While all of those can still be improved, and there will be trials in the category, such as a new clothing-only store in Battersea Power Station, as with food, behind-the-scenes changes are also being made because “availability and sales remain constrained by a high cost, slow-moving supply chain”.
There is ongoing investment. For instance, in boxed storage and hanging capacity automation in the logistics network, this “will increase capacity to serve online orders and reduce costs”.
A new planning platform will enable “ranging by channel, and ordering and intake in real-time”, and by 2027 it will be “linked to capacity, production plans and material requirements with a rationalised group of more strategic suppliers”.
Machin is also keen to expand in other general merchandise categories.
He says: “We think there’s an opportunity in home of beauty in the years ahead. We think there’s a bigger opportunity for more stylish homewares, more value and volume, and the same with beauty.”
Digital and online
An improved online offer will be central to building the clothing and home business. Machin says: “We need to accelerate our transformation and reimagine our proposition.”
Online accounts for about a third of sales, a number that has not changed much since the pandemic. The objective is to lift that proportion in clothing to about 50%.
Machin says: “We are very aware that we’ve got so much to do to be market leading. We want to invest in best availability and a much better website experience.
“We did pause some of the investment last year when it came to online because I strongly believed we needed a clearer plan before we invested. Now we’ve got that clear plan. I think it’s the right time to invest.”
In June, M&S brought in Rachel Higham as chief digital and technology officer. She and her team will play a pivotal role in driving the sort of improvements Machin wants, including enhancements to the Sparks loyalty scheme.
On that front, Machin says: “We’ve looked at what everyone around the world is doing on loyalty, but more importantly, we’ve asked our customers, what do you expect from this?
“What’s really clear is they don’t want tricksy prices. They want to know we have trusted value every day, but they want a personal experience. They don’t want us to know everything about them but they expect us to know something about them – what they buy, what they’re interested in.
“It isn’t going to be about promotions, but it is going to be about giving great value, personal experiences for you. There will be things that people will start to see from now, but there will be more to come in the next 12 months.”
‘Really good’ Christmas anticipated
In the face of increased costs, a strong Christmas is anticipated at M&S. That should also help put it on a strong footing as it adapts to a new cost environment.
Machin says: “We are feeling pretty confident. The reason is when we looked at all of our customer research over the last two weeks, our customers are anticipating they’re going to spend more this Christmas than last year.
“The second piece of good news is more shoppers are planning to pre-order and shop in advance. We’ve already seen that in our Christmas food offer in stores and [joint venture] Ocado, so I’m very confident that if we execute our Christmas plan we will have a really strong Christmas.”
Judging by the City reaction – M&S shares were up following the interim results – Machin’s confidence in the retailer’s future prospects are clearly widely shared.
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