Clothing Retailing Marks and Spencer

Clothing Retailing - UK - 

Marks & Spencer

The leading clothing retailer in the UK, M&S operates 330 stores not specialising in food in the UK, and nearly 200 in other European markets. The business enjoyed a rapid recovery under Stuart Rose, but was hit by the economic downturn in the second half of 2007/08, losing steam since.

M&S regained market share in clothing in 2006, following the turnaround steps taken since 2004/05, however this progress was soon reversed as the brand felt the effect of the economic downturn. Its mid-market positioning and older customer base, with these shoppers reining in spending from early on, may have contributed to the negative impact. Arguably, the early excitement from recent changes to the product offer has also waned, exposing the brand more to competitive pressure.

Strategic evaluation

The 45+ favourite

M&S is the destination for clothes shopping for the over-45s, according to our consumer research, and is thus well placed to benefit from the expected ageing of the population.

It has limited appeal among the under-25s, and would in Mintel’s view do well to largely steer clear of this hotly competed part of the market, where sales would likely come at a relatively high cost.

The key challenge for the brand is not to grow old with its customers.

On the one hand this means keeping the door open to the 30-somethings, encouraging an easy transition to M&S shopping later. The recently launched Indigo range of casualwear and denim suggests a step in this direction, but the range falls short of offering anything really attention grabbing, in Mintel’s view. However, the more catwalk-led autumn 2009 collection could succeed in this. A strong childrenswear offer could also contribute, by bringing mums into the stores.

On the other hand, this means not force-feeding ‘old’ styles to the mature consumers. The 40-somethings of today are the contemporaries of supermodels like Naomi Campbell and Claudia Schiffer, while the 50-somethings share their birth decade with Madonna, and while they may not aspire to look like these celebrities, they are influenced by the whole younger for longer trend. Catering for increasingly young attitudes with flattering cuts and materials is likely to be key, and something we believe the new Portfolio range has not fully succeeded in yet.

Arguably, M&S could benefit from releasing attention-grabbing pieces in small quantities only, such as in limited collections, to avoid the problem of shoppers steering clear of the most memorable or most advertised items for fear of wearing the same as everyone else.

The value equation

Having previously chased volume at the expense of margins, for which it faced some criticism, M&S has now focused on sharpening its value rather than price credentials. As a favourite of the AB consumers, building trust in its prices is the right approach for the long-term health of the brand, in Mintel’s view. Arguably, M&S’s food and clothing offer have drifted quite far apart in terms of their market positionings, failing to leverage mutual synergies.

However, M&S must offer an outstanding price-style-quality equation in its clothing offer, on some level. It cannot outdo the competition on price alone, putting the focus on offering compelling style and quality for the price, while remaining accessible to the mass market, as the top end alone is unlikely to be able to sustain the business, particularly in the current economic climate, but also long term.

For its core customers, the shopping experience can and does contribute to the value and uniqueness equation. While M&S’s performance is currently patchy in this area, it is a valuable competitive factor. This underlines the need for ongoing investment in the stores and focus on areas like service and stock availability, including seamless access to the broader back catalogue.

Recent history

2004	Abortive bid attempt by retail entrepreneur Philip Green. Stuart Rose appointed Chief Executive at end May. Head Office moves to Paddington. Kate Bostock joins as head of womenswear, later promoted to head of all clothing.
2005	M&S Money business sold. Executive Board reduced to three for quicker decision-making. Some 650 head office jobs cut. Per Una brand, originally developed for M&S, bought from George Davies for £125 million.
2006	28 stores acquired from Iceland chain in the UK. Kings Super Markets business in the US sold in April.
2007	Launched a £200 million business-wide eco-plan in January. Ruled out a rumoured bid for J. Sainsbury in March.
2008	Acquired 50% stake with Board control in Southern Europe franchise operator Marinopoulos Group in March. Purchased 51% stake in Central and Eastern European franchise partner COMS a.s. in April. Sir Stuart Rose appointed Executive Chairman in June 2008, announces plans to retire in summer 2011. In November 2008, George Davies the founder of Per Una retired as part-time Chairman of the brand.

Financial performance

●              Following a difficult 2004/05, improvements to operations saw a return to form in 2005/06, with robust growth in sales and profits, the momentum carrying onto the following year.

●              The troubles of the wider economy started to reflect on M&S in the second half of 2007/08, hitting the business significantly in 2008/09, when sales growth nearly stagnated and operating profit fell.

●              Sales growth has benefited from added space, with sales area in the UK rising by 16% over the period, while underlying sales growth has tended to be modest.

●              A focus on full-price sales, reviewed supplier terms and better buying helped to boost profits in earlier years.

●              However, margins came under pressure in 2008/09 despite the closure of 26 underperforming stores, as the group invested in prices and promotions to sharpen its value credentials. These were largely offset by improved buying in general merchandise, but not in food.

FIGURE 113: Marks & Spencer (UK): Group financial performance, 2004/05-2008/09

Latest year-end: March 2009	2004/05	2005/06	2006/07	2007/08	2008/09
Sales (£m)
Marks & Spencer	7,491	7,798	8,588	9,022	9,062
Of which:
Marks & Spencer (UK)	7,035	7,275	7,978	8,309	8,164
International retail	456	523	611	713	898
Sales (€m)
Marks & Spencer	11,035	11,397	12,581	13,172	11,593
Of which:
Marks & Spencer (UK)	10,363	10,633	11,715	12,131	10,445
International retail	672	764	866	1,041	1,148
Operating profit (£m)
Marks & Spencer	649	850	1,046	1,211	769
Of which:
Marks & Spencer (UK)	612	790	957	973	653
International retail	37	60	89	238	116
Operating margin (%)
Marks & Spencer	8.7	10.9	12.2	13.4	8.5
Of which:
Marks & Spencer (UK)	8.7	10.9	12.0	11.7	8.0
International retail	8.1	11.5	14.6	33.4	12.9
Pre-tax profit (£m)
Marks & Spencer	505	746	937	1,129	706
Pre-tax margin (%)
Marks & Spencer	6.7	9.6	10.9	12.5	7.8

SOURCE: Company Accounts and Annual Report/Mintel

UK

●              M&S’s sales contracted heavily in 2004/05, reflecting difficulties across all product areas.

●              A return to growth in 2005/06 came thanks to measures including a memorable food ad campaign and refocusing of the home offer on traditional strength areas (bedroom, bathroom, kitchen and dining). Clothing sales stagnated in spite of improved availability and a revamp of the price architecture.

●              The improvements continued to fuel strong underlying growth in 2006/07, while M&S also tapped into emerging food trends and the strong demand for home goods. Clothing enjoyed strong growth, having successfully re-established its fashion credentials, helped by clearer segmenting.

●              The underlying growth lost steam rapidly in 2007/08, amidst the troubles in the wider economy, weakening consumer confidence and growing pressure on prices. Clothing was, unsurprisingly, one of the areas worst hit by spending cut-backs.

●              Clothing was the weakest category over the period, its share of group sales falling from 46% to 43% though this largely reflects the expansion of the food-store portfolio and of the home offer.

UK 2008/09

●              The full force of the downturn hit the business in 2008/09, with like-for-like sales plummeting.

●              Food sales remained level year-on-year in 2008/09, reflecting high price inflation and the various promotions and price cuts taken in response.

●              Home goods sales were up thanks to a focus on ‘upgrading’ the home with soft furnishings, and strong demand for home entertainment electronics.

●              Clothing sales were down by 4%, underperforming the wider clothing sector. The group seems to have been severely hit partly because its older core customers were among the first to cut back on spending, and slow to regain confidence.

●              It remains to be seen whether the more fashion forward autumn 2009 collection can get the customers to open their wallets. According to the company, the new collections, Portfolio and Indigo, have been well received, though Mintel feels they have not boosted M&S’s fashion desirability to the extent seen with Per Una and Autograph.

●              Total UK sales were up by 1.7% in the first quarter of 2009 and 1.9% in the second quarter, however like-for-like sales fell by 1.4% and 0.5% respectively.

●              Clothing was up 1.4% in the first quarter of 2009, and 2.7% in the second, however general merchandise like-for-like growth was negative in both quarters, suggesting less robust underlying sales in clothing which accounts for much of the category.

FIGURE 115: M&S: UK retail sales by product category, 2004/05-2008/09

(£m, excl sales tax)

Latest year-end: March 2009	2004/05	2005/06	2006/07	2007/08	2008/09	% change 2007/08-2008/09	% change 2004/05-2008/09
General merchandise	3,649	3,652	4,003	4,059	3,918	-3.5	+7.4
of which:
Clothing	3,271	3,270	3,571	3,593	3,447	-4.1	+5.4
Home	378	382	432	466	471	+1.1	+24.6
Food	3,386	3,623	3,975	4,250	4,246	-0.1	+25.4
Total	7,035	7,275	7,978	8,309	8,164	-1.7	+16.0

SOURCE: Company Accounts and Annual Report/Mintel

Store portfolio

●              With 330 stores not specialising in food, M&S has among the most comprehensive coverage in UK non-food retail. 92 net new stores not specialising in food opened over 2004-08.

●              The food stores have been the focus of expansion in recent times, with nearly 200 new stores opening over 2004-08, driven by the franchise operation.

FIGURE 116: M&S: UK and ireland Outlet data, 2005-09

At end-March	2005	2006	2007	2008	2009
No. of stores:
UK	375	399	520	622	668
Including:
Simply Food (owned)	122	101	144	167	156
Simply Food (franchised)	15	43	61	132	182
Stores not focused on food	238	255	315	323	330
Republic of Ireland	9	11	13	17	18
UK sales area (000m2) (a)	1,198	1,218	1,253	1,392	1,385
UK sales per m2 (£)	5,872	5,978	6,003	5,965	5,880

(a) Excludes franchised stores.

SOURCE: Company Accounts and Financial Reports/Mintel

Store modernisation

●              The store modernisation programme launched in 2004/05 was necessary for the store environment to live up to and support the refreshed brand proposition, in Mintel’s opinion.

●              Measures adopted have included upgrading of fixtures and fittings and changes to the store layout and the product offer, to tailor these to each location. The aim is also for stores to support the segmentation of the clothing offer into sub-brands.

●              Some 80% of the portfolio was completed by end 2008/09, with the modernised stores reportedly outperforming the rest of the portfolio. Capital expenditure on store modernisation was cut from £536 million in 2007/08 to £216 million in 2008/09

●              The group expects to complete the remaining 20% of the portfolio in the next few years. However, in Mintel’s view, it should maintain ongoing investment in store improvement, as particularly for busier stores, constant re-touching is needed to keep them looking presentable.

Too much product

●              The product offer has now expanded beyond the capacity of any individual store, underlining the importance of seamless integration between the physical stores and the back catalogue. While M&S reports that it is trialling in-store ordering, Mintel feels this is an area where ensuring ease of access across channels would maximise synergies.

FIGURE 117: M&S: Outlets not specialising in food, by type, 2008-09

At end-March	2008	2009
No. of stores:
Premiere	10	10
Major	40	43
Retail park	27	29
High street	213	209
Outlets	33	39
Total of above	323	330

SOURCE: Company Accounts and Financial Reports/Mintel

Retail offering

Market positioning

●              ABC1 consumers over the age of 45 come across as M&S’ core audience in clothing, in our consumer research.

●              Despite efforts to boost the brand’s fashion authority, its appeal among the under-35s remains limited.

●              While the group must be aware of ageing with its shoppers, and continue to attract new generations of 30+ shoppers, we feel it has little to gain by joining the battle for the hotly-competed under-25s.

●              While the group has looked to sharpen its value credentials with competitive opening price points, its offer is mainly geared towards the ‘better’ segment or mid-mass market.

Brands/Product offer

M&S has traditionally been all about own-brand. The comprehensive clothing offer caters:

●              From underwear to outerwear

●              Across occasions from casual through business to formal

●              Across price points in the middle mass market

●              For almost all ages (perhaps with the exception of teens and young adults)

●              Including footwear and accessories.

Targeting through sub-brands

●              To better segment the offer and inject more fashionability, a portfolio of exclusive clothing sub-brands has been developed in recent years.

●              The sub-brands divide the collection by fashionability/quality and, to a certain extent, by price, though segmentation of the offer in-store sometimes falls short of supporting this to maximum effect.

FIGURE 118: Marks & Spencer: Clothing own brand portfolio, 2009

Brand	Description	Other products
Womenswear:
per una ‘Inspired by Italy’	A colourful collection with decorative detailing. Feminine daywear, including some tailoring. In addition to the main line there is: - Collezione Speziale (special occasion/premium) - Collezione Italia (premium daywear) - Petite range launched in 2007	Swimwear, lingerie, jewellery, accessories, footwear, beauty
Limited Collection ‘Hot off the catwalk’	Stylish and contemporary – limited runs of ‘wearable’ fast fashion, with new stock weekly. Includes Maternity	Accessories, footwear, lingerie
Autograph ‘The signature of luxury’	The ‘best’ end of the product offer, orientated to smart and smart-casual looks. Also including: - Weekend (casualwear) - Autograph Exclusive (limited edition top-end) - Autograph Essentials (launching August 2008 – key essential wardrobe items, still at Autograph price level)	Accessories, jewellery, lingerie, footwear, home, childrenswear
Classic	Classic styling for the mature 55+ conservative woman	Footwear
Portfolio	A formal range said to offer modern styling and flattering fit for the 45+ women	Accessories
Indigo	A casual, denim-orientated range for the 30+ woman
Women’s lingerie:
Body	Body Body Miracle Body Basics Body Nudes
Ceriso	Young and colourful	Nightwear
Adored	Pretty and feminine
Menswear:
Blue Harbour	Mainstream casual/weekend menswear. Includes a golf range and some ‘outstanding value’ items	Footwear and accessories.
Autograph	Contemporary formalwear suits (designed by Timothy Everest) and smart casualwear at the ‘best’ price position. Autograph by Jsen Wintle capsule range in 2009.	Footwear and accessories. Underwear.
Collezione	Tailored formalwear and smart casualwear at the ‘better/best’ price position, for 45+ men
North Coast	Easy and relaxed casuals
Big & Tall	Sizes from 36”-52” chest and up to 35” leg
Fairtrade/organic	Men’s, women’s and children’s underwear, jeans and T-shirts in Fairtrade and/or organic cotton
Childrenswear	Babywear: 0-2 years
	Young girls/boys: 1-7 years	Footwear, underwear, schoolwear, nightwear, accessories
	Older girls/boys: 6-14 years	Footwear, underwear, schoolwear, nightwear, accessories
	‘Living the Dream’ boyswear collection – a grand prix-themed range in collaboration with Vodafone McLaren Mercedes.

SOURCE: Mintel

●              The table above does not include the ‘Outstanding Value’ ranges as this is not a sub-brand, but a category to describe competitively priced entry point merchandise across the main offer.

●              In addition to the sub-brands in the above table, M&S womenswear also has the following categories:

●              Petite: For women 5’3” and under

●              Plus: For women sized up to 28 (though most women’s sub-brands go to size 20)

●              Bridal: a capsule bride and bridesmaid collection

●              Maternity: maternitywear.

●              The Made to Measure service for men’s shirts launched in late 2007. It allows customers to choose the fabric and detailing, with the shirt made to measure (by height, weight, collar size, age).

●              In menswear, M&S has looked to differentiate with technical product innovation, such as water and stain repellent Stormwear finish in trousers and a silver finish on the Freshfeet range of socks said to reduce the presence of bacteria that cause smelly odours.

2008/09 – effort to drive excitement

The clothing offer seems to have lost some of the excitement of the launch of earlier sub-brands like Per Una and Autograph. Promisingly, M&S is said to be working to improve choice, partly by streamlining the offer, and to drive excitement across the clothing offer. It remains to be seen how its customers will react to the more catwalk-driven collections for Autumn 2009.

Two new womenswear sub-brands were launched in 2009, as the company looked to inject excitement into its offer and strengthen its appeal to the 30+ customer.

●              Positioned as a modern, stylish collection for the 45+ women, ‘Portfolio’ launched in February 2009. Customer response is said to have been pleasing, with plans to expand Portfolio into a full lifestyle brand. The brand seems to have benefited from lack of competition targeting this age bracket.

●              ‘Indigo’, a denim-orientated, casual sub-brand for 30+ women launched in September 2009, in response to demand for a dedicated label for this offer. However, there seems to be little to differentiate Indigo from the broader M&S offer, or the likes of Gap and Next, at least in the initial offer.

●              Slow to join the designer collection trend, M&S launched a one-off range of women’s clothing and accessories by Patricia Field (the stylist behind Sex and the City) in November 2008, and a summer collection by Zandra Rhodes in 2009, helping to sharpen M&S’s style credentials.

The menswear offer, typically behind womenswear in the fashion stakes, is being sharpened in 2009, with a focus on better distinguishing the ranges, including through:

●              Relaunch of the Collezione sub-brand in autumn 2009, as more trend-led, with a higher share of buying budget allocated to in-season buying to enable the brand to react to the latest trends, targeting the 40+ customer.

●              Expansion of the smart casual offer under Autograph, and of footwear and accessories under Autograph Essentials, as well as the launch of a range designed by Jsen Wintle, founder of the luxury menswear brand Wintle.

●              Repositioning Blue Harbour towards its roots, with a sharper, smarter offer.

●              Establishing North Coast as a standalone sub-brand, having previously been a sub-section of the Blue Harbour casualwear offer.

Pricing

2005 saw M&S realign its prices to offer customers better value, with benchmarking of opening price points against key competitors and good, better, best pricing across ranges.

Across the M&S clothing offer, positioned in the broad middle mass market, the product and price architecture has been stretched downwards (especially with the ‘outstanding value’ basics), while sharpening the top-end offer under the Autograph collection.

In more tangible terms, the pricing structure is evident across most clothing categories, for example:

●              Women’s formal trousers range from £9.50 to £59, with some 40% of the range priced at £25-30.

●              In men’s formal shirts the prices start at £8.50, climbing to £39.50, with 38% of the items in the £25-30 bracket.

●              In women’s jeans, the prices run from £12-45, with more than half of the range priced at £25-30.

FIGURE 119: Marks & Spencer: Clothing price architecture, 2004-08

Price category	2004	2005	2006	2007	2008	% point change 2004-08
	%	%	%	%	%
Good	12	17	28	30	28	+16
Better	65	63	54	53	53	-12
Best	23	20	18	17	19	-4
Total	100	100	100	100	100

Note: Portion of stock within each pricing segment.

SOURCE: Marks & Spencer

Operational issues

●              The buying cycle has been shortened from two collections yearly to ten, with a quarter of the budget held back for in-season buying, enabling the group to react more quickly to changing trends, weather or competition.

●              This brings M&S more on a par with the competition, with fast fashion brands like Zara and H&M bringing in new stock to stores on a weekly basis. The newness creates a reason for customers to visit stores more frequently, also encouraging a buy-it-now mentality.

●              The group is also said to be looking to improve availability of product in-store, with updates to the stock planning systems. Anecdotal evidence suggests that some of the stores’ performance in this area can be patchy.

Advertising and marketing

●              Marketing has, in our view, played a major role in the refreshing and repositioning of the brand, supported by rapidly rising ad spend. Marketing costs were cut in 2008/09, with further cuts expected in 2009/10.

Sharing the celebrity shine

●              The clothing advertising has focused primarily on womenswear, which heavily influences how customers perceive the brand.

●              Since 2005, a string of high profile models and celebrities have featured in M&S womenswear ads to boost its style credentials and appeal to various age groups, such as Twiggy, model Lily Cole, 1970s model Marie Helvin, and TV personality/musician Myleene Klass.

●              In menswear, a similar approach was taken in 2007 and 2008, with a series of ads featuring 1990s boyband Take That, reunited for their comeback.

●              The 2009 Christmas ads are reported to feature Joanna Lumley, John Sergeant and Stephen Fry, though the group is yet to confirm this, and whether the rumoured ads will be for food or fashion.

●              While the celebrity ads have given a marked boost to sales and the brand image, these have now lost some of their fresh edge, in Mintel’s view.

Re-focus on value

●              Value has regained importance in the economic downturn, with M&S ad campaigns adopting the tagline “Quality worth every penny” in both food and non-food.

●              The “Dress for less” campaign with Myleene Klass in early 2009 featured five wardrobe staples put together to create five distinct outfits, aiming to underline value for money ‘per wear’.

●              In the run-up to Christmas 2008, M&S looked to sharpen its value credentials with two ‘One Day Christmas Spectacular’ events, offering 20% discounts on clothing, home goods and wine in-store and online.

Leveraging heritage

●              2009 is M&S’s 125th anniversary year, and the theme has featured across much of its marketing.

●              In a special campaign, the group launched a three-day “penny bazaar bonanza” in May 2009, offering various commemorative items for a penny, the standard price at the original stall run by Michael Marks.

●              M&S’s anniversary was also marked with a TV ad taking in scenes from the group’s history and listing various innovations from over the years, similar to recent ads by Sainsbury’s and Hovis.

●              Leveraging the brand heritage has been a popular approach in the economic downturn, in a bid to make the most of trust and familiarity in the turbulent times.

e-commerce and home shopping

●              M&S Direct is the brand for the company’s e-commerce site, home catalogue, Christmas hamper delivery, flower and wine delivery, in-store ordering service and Lunch to Go catering service.

FIGURE 120: M&S: M&S Direct sales, 2006/07-2008/09

(£m, excl sales tax)

Latest year-end: March 2009	2006/07	2007/08	2008/09
Sales	160	220	324

SOURCE: Company Accounts and Financial Reports/Mintel

●              The e-commerce site has enjoyed rapid growth since it was relaunched in partnership with Amazon in March 2007.

●              The online arm strongly outperformed group sales growth in 2008, benefitting from strong demand as well as the launch of an online wine club, international delivery (France, Germany, Spain, the US, Canada, Australia, New Zealand) and the introduction of 3,000 white goods online.

●              Marks & Spencer targets annual sales of £500 million through M&S Direct by 2010/11, and sees the arm as “key to improving customer convenience and service, helping us to reach a new generation of shoppers”.

●              In-store collection of online orders is now being trialled at selected stores, in a promising step towards more comprehensive integration of the store and online channels.

For the clothing offer, the site features relatively comprehensive information, including:

●              catwalk videos

●              customer reviews and ratings of products

●              information on fabrics and care instructions

●              information on product details (eg fastening, pockets, lining, stretch)

●              search by category, brand, range

●              narrow selection by colour, price, size

●              sort by best-selling, new arrivals and price.

All in all this makes for a user-friendly experience, the customer reviews and ratings providing useful feedback for the company and leveraging the power of word of mouth. 

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