'Better value than Primark' and essentials appeal - how Marks & Spencer is rebuilding clothing clout

Over the past few years, Marks & Spencer’s food arm made great strides under Stuart Machin, now chief executive. 

While there has also been progress in the apparel business, it has been in the midst of what has seemed like permanent turnaround efforts. 

The clothing and home arm is vital to Marks & Spencer because of its higher margins and contribution to the bottom line. In the 26 weeks to October 1, operating profit before adjusting items was £171.4m in clothing and home, compared with £71.8m in food.

M&S also achieved a 50bps increase in its clothing market share to 9.1% in the 24 weeks to September 22 – the first rise on such a scale in a decade.

The improved performance – total clothing and home sales were up 14% and like-for-likes rose 13.7% – is down to changes made by fashion boss Richard Price and his refreshed and strengthened team, alongside M&S co-chief executive Katie Bickerstaffe who has overseen a digital-first omnichannel strategy.

Machin described the clothing and home performance as the “standout” from M&S’ first half, and bosses believe changes made, alongside some traditional M&S attributes, position the business well for the tough period to come.

Buying and ranging

Machin says the “robust” performance of its clothing arm was underpinned by a drive “to rebuild our style and value credentials and reset our shape of buy. The work done to remove duplication, buy better and deeper in core product, and invest in emerging growth categories means now we have more stylish, better value ranges that are easier to shop.”

A reduction in womenswear options did not hold back sales growth. Although its womenswear range was streamlined by 5%, sales jumped 15%.

Overall, the business had 276 lines that generated sales of more than £1m each in the first half and sales of those lines were up 25% year on year.

Alongside an increasing focus on established categories, M&S has also bolstered its presence in “emerging growth categories such as kidswear and brands” including through its new online platform approach, selling third-party brands.

GlobalData retail group research director Maureen Hinton observes: “The new team has brought in more commercial ranges that reflect trends and have been able to roll them out successfully.

“M&S always seemed very inward-looking with a narrow view, because it focused too much on its perception of its core customer, rather than looking outward and winning a much broader customer base. And, of course, adding third-party brands offers more choice, which brings in new customers who then register the changes in the core offer.”

‘Better value than Primark’

‘Don’t ask the price, it’s a penny’ was the famous slogan on which M&S was built by founder Michael Marks.

Today, as inflation and currency volatility wreak havoc in retail, M&S product may not be quite so cheap but the retailer is determined to exploit its value heritage, complemented by a reputation for quality and style.

Bickerstaffe says that last month M&S knocked Primark off the number-one spot for value-for-money perception according to YouGov and pledges that prices will be held down as much as possible.

She concedes that M&S had increased prices by around 7% in clothing and home, and warns “we expect potentially some more to have to pass through” to customers. 

But Bickerstaffe insists: “Ten years ago, we were seen as being quite expensive. We’re very keen to maintain our value, quality and style position. 

“We’re making sure that wherever we can, we protect our customers and we protect the lines that really matter to customers. Last month we were back at number one for value for money for customers, ahead of Primark. I think it’s extremely important to maintain that position.”

Bickerstaffe reveals that M&S customers have already bought “about 30% of their Christmas gifts” and the retailer had invested in value there – 70% of its gifts are priced at less than £20. 

Key categories that are being protected include denim, where 60% of the offer is priced below £30, and entry price points on essentials such as bras – a category in which M&S holds a 35.6% share of the UK market. 

Strength in everyday essentials

It is not surprising that M&S is determined to protect entry price points of products such as underwear and nightwear, given the retailer’s commanding market share positions in such categories – itself a strength when consumers’ cash is tight.

Bickerstaffe emphasises: “The majority of our business is not highly discretionary fashion categories. We sell a lot of pyjamas, we sell a lot of bras, a lot of knickers, a lot of tights and school uniforms. 

“These are essential items and it’s very important across those categories that we offer great value for money. Where we can, we’ve invested in reducing prices in some of those key lines.”

Omnichannel appeal

M&S may have been comparatively late to the omnichannel party, but that model – including promoting the use of its Sparks loyalty scheme and app – is bringing benefits now.

Store sales of clothing and home goods were up 18.8% in its first half. Online growth was more muted at 4.9% – in keeping with patterns observed by many other retailers as shopping behaviour adjusts following the pandemic – but accounts for 32% of total clothing and home sales.

Greater emphasis has been placed on digital-led M&S to introduce complementary third-party brands to its site. Although they deliver slimmer margins than own-brand sales, revenues raked in from third-party products reached £70m during M&S’ first half.

The retailer provides the example of school uniform shoppers also picking up a pair of Clarks shoes as just one example of own-label and third-party brands having a halo effect. 

Bickerstaffe says the third-party brands M&S stocks are “quite curated and there to complete the customer offer” and so “keep customers in the M&S world more broadly”. 

She adds: “The majority of those sales are incremental and are bringing in new customers to Marks & Spencer – and that’s very important.”

Incremental sales have also been won online by an enhanced ability to personalise or recommend relevant products. For instance, the M&S website’s ‘typically bought alongside’ recommendations added £20m of incremental revenue during the first half.

M&S now anticipates that between 20% and 25% of “all digital interactions” will be personalised this year and bring in £100m of annualised incremental revenue.

“M&S has emerged post-pandemic in a much stronger market position and with good momentum in its transformation strategy”

Investec

M&S shares were down almost 5% at the time of writing, however, suggesting investors are more nervous about retail prospects and whether M&S can thrive as conditions tighten even further.

But as broker Investec observes: “M&S has emerged post-pandemic in a much stronger market position and with good momentum in its transformation strategy. Relative to others, M&S has material productivity opportunities to go after, which should help mitigate future inflationary pressure.”

Hinton says: “As trading conditions get worse, I think Stuart Machin was right in pointing out they are more insulated in having a fairly affluent customer base, as well as older customers who have a reserve of savings – and there could be an inflation-driven income increase for the pensioners – to support them. They are no doubt picking up a lot of ex-Debenhams shoppers and could benefit from other casualties to come.”

Having maintained its full-year profit guidance, even though life in retail is not going to get any easier, it looks as if what Machin describes as “an increased resilience and level of confidence” at M&S could well be justified.

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