Amazon has been linked with a raft of UK grocers since its acquisition of Whole Foods last year – talk that has increased in fervency following the shock Sainsbury’s-Asda merger.
Morrisons, to many, is the obvious candidate ripe for the picking. The big four grocer already supplies Amazon’s Fresh, Pantry and Prime Now divisions with thousands of products, and an extension of that relationship could suit both parties.
But Amazon appears to be casting its net beyond Bradford. Reports emerged only a fortnight ago that the etail titan had approached John Lewis Partnership chairman Sir Charlie Mayfield over a possible takeover of Waitrose.
Ocado has long been talked of as a potential target for Amazon, but that horse may have bolted given its recent success in signing up international retailers to the Ocado Smart Platform. Last week’s landmark deal with US grocery giant Kroger sent Ocado’s share price surging above that of M&S.
So what about M&S? The latest market speculation to prick ears at Retail Week Towers is that Amazon is running its slide rule over the 134-year-old high street stalwart.
The more you consider such a move, the more it makes sense.
“For their part, Norman and Rowe could see Amazon as the solution to M&S’ online grocery dilemma”
There’s no doubt M&S would represent decent value for a buyer right now. Its share price has halved in the past three years, from 591.5p on May 26, 2015 to 291.8p when markets closed yesterday.
Even after creeping back above 300p in early trading this morning, its market cap remains under £5bn – a snip for a business with pockets as deep as Amazon’s.
Yes, M&S is in the midst of a radical transformation plan to set itself up for a multichannel future – the 62% slump in pre-tax profit to £66.8m and a hefty £514m adjusted items bill unveiled today tells that story – but the core foundations of a much-loved British business are there to be built on.
Food would clearly be the main attraction for Amazon – a market it has its sights firmly set on in the UK.
M&S’ upmarket proposition would fit nicely alongside Whole Foods, and its nationwide coverage – including a decent presence in London – could prompt Jeff Bezos and company to prioritise dialogue with Archie Norman and Steve Rowe over Morrisons duo Andy Higginson and David Potts.
For their part, Norman and Rowe could see Amazon as the solution to M&S’ online grocery dilemma.
Perfect partners?
Questions might, however, be asked over whether Amazon would want to buy such a large store network, but it has proven with Whole Foods and its opening of standalone bookstores in the US that a physical presence appeals as it constructs a multichannel proposition.
M&S’ stores would help boost the presence of Amazon Lockers to give its click and collect credentials a further leg up and, with M&S already in the process of shutting stores, Amazon would not be seen as the grim reaper were it to buy the business and streamline that portfolio further.
Further concerns could be raised about what an Amazon deal would mean for M&S’s fashion business. Could it spark a complete split, for instance, with the US Goliath only buying its grocery division?
Such suggestions would neglect Amazon’s progress in clothing in its native US, where is has expanded and improved its own label offer to grow sales. According to analyst Morgan Stanley, Amazon will overtake Walmart this year to become the US’ largest clothing retailer.
The etailer even hired Frances Russell – herself a former boss of M&S womenswear – as vice-president of clothing to lead its assault on apparel.
Although it has not made fashion a priority in the UK as yet, establishing a greater foothold in that lucrative market would surely appeal to the power brokers in Seattle.
One thing is for sure, though, Amazon will find it extremely time- and capital-intensive to grow a decent food or fashion business in the UK organically and will need plenty of help to do so. M&S could prove the perfect partner to allow it to do both.
There’s no doubt Amazon would have some work to do – and it would need to invest rather more than its initial £5bn-plus outlay to solve some of M&S’s problems, but tales from Stateside suggest the retailer isn’t afraid of doing exactly that.
Having bought Whole Foods and invested heavily in lowering prices, Amazon has found that, as sales volumes increased, the upmarket grocer’s supply chain has struggled to cope with the uptick in demand, leaving gaps on shelves in some key categories.
It won’t happen overnight, but Amazon has the cash and capability to right such wrongs. The same would apply were it to buy M&S.
A rumour it may be, but as UK retail continues to polarise businesses into those that will ‘consolidate or be consolidated’, M&S could well find its way onto Amazon’s wish list.
No comments yet