M&S card deal will need a strong hand

Marks & Spencer is trying to bolster its recovery by launching a combined credit and loyalty card and bolstering its financial services arm. The scheme will have to be novel to survive in a crowded market, says Gary Thurtle

Marks & Spencer is trying to bring itself into the 21st century. Several years after the launch of loyalty schemes by its rivals, the retailer – which has only accepted credit card payments in its stores since April last year – is beefing up its financial services arm.

M&S plans to introduce a loyalty scheme tied to a credit card in order to bolster its financial services arm (MW last week). The company already operates a store card, which gives 55 days credit and has 5 million customers, but it will not say whether the new scheme will be a revamping of this card or a standalone scheme.

M&S says that it wants to develop “synergies” between its stores, its store card and its financial services products in general. But it will not comment further on its plans.

Observers believe that, unless the company works hard to make itself stand out from the crowd, any new scheme could drown in the sea of credit and loyalty cards currently on the market.

Frost & Sullivan smart card analyst Anoop Ubhey believes a combined credit and loyalty card would be a sensible move, with emerging smart-card technology – currently used by Boots on its Advantage credit card – allowing M&S to develop a sophisticated scheme.

But he warns: “A loyalty scheme on its own will not actually build loyalty. The offer needs to be differentiated from other loyalty schemes.

“If used correctly it can be a crucial weapon against the opposition, but if it is mismanaged it can become a costly overhead. The profit that a loyalty scheme can bring is only as good as the people running it.”

If M&S wants a lesson in how loyalty schemes can go wrong, it can look at rival Safeway, which ditched its ABC loyalty scheme last year because it was costing &£50m a year. The card was also described by the company as “boring” and the money was instead invested in making products cheaper.

But given the decline of M&S in recent years, and the number of innovations it has introduced on the retail side this year, an innovation in its financial services division seemed inevitable.

Profits for the division fell from &£101m in 1999/2000 to &£96.3m in 2000/2001. These figures only go up to March 31, however, and M&S says profits are now starting to rise.

Tellingly, in its latest annual report the company says the proportion of store purchases made using its store card fell from 26 per cent to 22 per cent, “reflecting the decision to accept credit cards in our stores last year”.

However, simply blaming the introduction of credit card sales does not explain the whole story. The number of rewards and incentives schemes offered by credit card companies such as Egg and Barclaycard are growing, making the cards increasingly attractive to consumers.

In addition, the interest rate of credit cards is falling, adding to their appeal relative to store cards. Boots’ Advantage credit card charges 14.9 per cent and even Barclaycard – often seen as a premium brand – has reduced its interest rate to 17.9 per cent. M&S’ store card charges 18.9 per cent APR, which – although the fourth cheapest UK store card according to Moneyfacts – is high compared with the credit card market.

It appears, then, to be a question of innovate or die for the financial services division, which appointed Lloyds TSB wealth management managing director Laurel Powers-Freeling as chief executive in October.

Julie Cunningham, Datamonitor lead analyst for European finance, says: “Credit cards are so cheap now that store cards are becoming an undesirable product; they are being used by people in the C and D income brackets. I don’t think they could compete with the likes of Egg in terms of APR, but a credit card with a loyalty scheme is potentially a positive move, if one that comes a little late.”

M&S hopes that creating a high-profile loyalty card will help introduce customers to the range of products offered by its financial services division, which include life assurance, savings plans and loans. There was a flurry of activity last year when the division launched a mortgage payment protection scheme in August, home and contents insurance in September and a car-buying plan in October.

It is now using the popularity of the new Per Una clothing range, created by Next founder George Davies (MW October 4), to market financial services in Per Una sections of stores, using the Per Una colours.

Interfocus chairman Matthew Hooper created the first UK store card – for Bhs – in 1987, and revamped Selfridges’ store card two years ago. He says: “M&S didn’t accept credit cards until recently because they erode margins. What it is now trying to do is get that share of credit payments back.

“The way forward has got to be to get consumers to build up a relationship with a brand by looking at different ways of rewarding them for their loyalty. Just doing points and prizes is dangerous.

“You’ve got to cross-promote products and come up with ideas such as in-store “members’ days”. Unless you use the scheme to improve your service you are wasting money.”

Brian Roberts, senior European retail analyst at Mintel Retail Intelligence, believes moves such as the introduction of the Per Una range are helping M&S to rebuild its battered reputation.

But he says the company should not be distracted by financial services: “The best way to establish loyalty is to give people what they want at a price they are prepared to pay. M&S hasn’t done that for several years but is starting to do so again. Loyalty cards can have a positive effect but are no substitute for proper retailing.”

M&S hopes a combined loyalty and credit card will help restore the brand to its former glory and give financial services the exposure the company feels it deserves. But the credit market is increasingly competitive and creative and M&S may find that the task ahead is tougher than it thinks.