Marks and Spencer chief executive Marc Bolland today (9 November) stepped beyond his mantra of “evolution not revolution” to reveal a series of significant changes for the UK retailer.
The company plans to invest some GBP900m in developing both its UK and international operations, including scaling back on the number of food brands sold in the UK, refreshing its domestic stores and expand in India and China.
The plans form part of Bolland’s long-awaited strategy for M&S although the Dutchman, who joined from Morrisons in May, was quick to say that the changes were a “team effort”. He said the strategy was formulated in collaboration with the executive team and M&S’s top 100 employees, who were asked what were their “top three issues” with the company.
From these meetings, M&S has planned a series of sweeping changes to its UK operations, to help the retailer differentiate itself from what Bolland describes as the “crowded, low margin and competitive” supermarket sector.
Bolland is looking to reposition M&S more as a specialist, taking what he describes as “one step to the right” from where it is now and that all products will be “only at your M&S”. He said the position will mean that all the products the retailer offers will either be a “little bit better or a little bit different from what you can get anywhere else”. He said: “The M&S brand should do things nobody else does.”
M&S will look to offer innovation in its food products; Bolland highlighted the retailer’s pasta product which is rough, allowing it to soak up more sauce.
As part of this, the retailer is scaling back its branded product range from 400 SKUs down to around 100. “Twenty per cent of the brands are doing 80% of the work,” Bolland said. He added that the reductions would be to the number of SKUs for each brand, not the number of brands.
Where M&S is carrying four to five variants of the same brand, the company will now look to reduce the number of varieties, opening up space for its new “guest list” of exclusive international “niche” brands that Bolland said won’t be available anywhere else in the UK.
The range would include products from international manufacturers that “do something interesting”, but added that wouldn’t necessarily mean they would be more expensive.
M&S is also reworking its food halls to be “more inspired” and Bolland said that it plans to improve the inefficient use of space in that department, making way for it to increase the number of products by 1,000 SKUs.
This expansion of the food range, Bolland believes will mean that more customers are able to do a “fuller weekly shop”, expanding beyond the company’s reputation as a top-up and convenience operator.
Regarding the retailer’s online ambitions for food, Bolland said the retailer will study the channel over the next three years, but emphasised that he is “not in the business of losing money” and will look for a “viable business model”. He added that the retailer faces a different set of operating conditions to the other major UK retailers, with its average basket sitting at around GBP35-40 compared to GBP100 or more for its competitors.
Internationally, the retailer is also shifting its priorities, moving from a company-owned model to a franchise model, which will allow it to expand faster with a lower investment. The retailer is looking to “reduce its dependency on the UK economic cycle”, and build a leadership position in its priority markets, which remain India and Shanghai in China.
Bolland said that India customers “understands the M&S brand”, attributing that to its position as a Commonwealth country.
However, he sees a tougher road in China, noting its regional differences. “China is not one country,” Bolland said. “Shanghai is as big as a small European country.” Over the next three years, Bolland plans to build anumber of stores in Shanghai, while getting the supply chain, styles and management right before it considers expanding beyond the city.
When asked if Bolland was reversing errors made by the previous management, he said that the company takes an “evolutionary model” and that “things that worked ten years ago do not work today”. However, in praise of outgoing chairman and former chief executive Sir Stuart Rose, Bolland said, that compared to five years ago, M&S’s “product is better and the stores are better”.
CFO Alan Stewart remained downbeat on the on the state of the economy, expecting a “more pressurised outlook” with decreased consumer spending power due to increased VAT rates and the impact of public spending cuts as well as higher commodity prices, tougher comparatives.
However, speaking about the economic environment surrounding the ambitious expansion plans, Bolland said: “This is a plan we believe in, that we think is achievable”, but that the “economy is not within our powers to control”.
With the company forecasting a sales uplift of GBP1.5bn to GBP2.5bn from the plans after the 2013/14 fiscal year, there remains a great deal of potential upside for the retailer if it is able to achieve these ambitious plans. However, we will have to wait until then to gauge what Bolland’s legacy might be.