M&S must choose quality or value to hold onto customers
As long as Marks & Spencer is out of touch with consumer demands, it will not be able to turn its fortunes around, says George Pitcher
There are plenty of observers who will claim that Marks & Spencer is dying, and I’m inclined to agree. I’m not suggesting that the retail monolith is going bust, or is about to be bought by Wal-Mart and rolled into one brand with Asda. It’s just that the old M&S is dying and a new child is taking its place.
Signs that nature has been taking its course have been apparent over the past couple of years. Sir Rick Greenbury rather unwillingly gave up the day-job as chairman, describing the clothing retail sector as a “bloodbath”. When the fight for succession as chief executive was won by Peter Salsbury, he immediately had to undertake emergency open-heart surgery to give his patient the chance of leading a full life again. The latest blow came last week when M&S announced it will sever its cosy, 30-year-old supply agreement with its fourth largest supplier, William Baird.
M&S first started to buy direct from manufacturers in the Twenties, a rather radical initiative in those days, when wholesalers were taken for granted. Since then, M&S has been a mainstay for the UK rag trade.
Sourcing for many retail industries, particularly shoes, has increasingly moved overseas in recent years, to take advantage of the higher margins offered by lower labour costs.
So it’s less surprising that M&S has ditched Baird in favour of foreign imports, than that it has taken so long to do so. M&S is joining the second half of the twentieth century just as its retail rivals are preparing to join the twenty-first.
But while the caterpillar is shedding its chrysalis, it’s difficult to see a brightly-coloured butterfly emerging – and Salsbury has an enormous job to make it fly.
The Greenbury legacy is a heavy one. His power over M&S in the old days was awesome. He had ultimate sign-off on the fashion collections, meaning that teenagers were potentially being styled by their grandfathers’ generation. Greenbury would fire off angry letters to newspapers that his press officers would read for the first time in the morning editions.
None of this is life-threatening in a business sense and is nothing compared with the achievements of Greenbury in building M&S as a formidable retail force over 40 years. But it is symptomatic of a company that has been held back by autocracy.
It was telling that during the boom years of the Eighties, the M&S press office seemed to exist to frustrate any journalists’ attempts to reach a director for comment. It is equally symptomatic that M&S has only now hired its first PR staff from outside the company. The press office now has a staff of six, servicing up to 600 calls a week.
But the biggest problem that M&S faces is that it’s stuck in Middle England – at least, it’s stuck in a Middle England that has long ceased to exist. As my friend Lindsay Nicholson, the new editor of the quintessentially middle-belt Good Housekeeping, puts it, Middle England is having its belly-button pierced.
M&S isn’t having its belly-button pierced. But it is contemplating its navel. And if Salsbury raised his eyes from the supply end of his body corporate, where he’s chasing margin through the dumping of Baird, to the demand end – as he surely must – then he’d notice that he’s not only stuck in a Middle England that’s ceased to exist, but also in a rapidly dying out middle market.
According to Verdict Research, consumers are increasingly demanding either value or quality, not some post-war, mish-mash offer of “value for money”, or “good quality at reasonable prices”, or whatever has been the M&S staple for so long.
This means that at one end of the market we have the likes of Matalan, the out-of-town discount retailer whose shares trade on a massively rated 40 times prospective 1999 earnings, and at the other end we see premium niche operators, such as Next, and new premium-market entrants, such as the Swedish Hennes & Mauritz. Even the supermarkets add a competitive edge, with niche lines such as the George range at Asda.
That leaves the lumbering, plain-vanilla mob in the middle-ground. It’s not, of course, only an M&S problem. Last week, Arcadia, the holding group for such middle-of-the-high-street brands as Top Shop and Dorothy Perkins, announced pre-tax earnings down by some 44 per cent to &£47.8m. It’s also tough for Debenhams, from which Arcadia demerged, and for Storehouse. As Thomson Travel demonstrated, when a market leader falls it takes the market with it, so the mid-market store groups must be hoping that Salsbury gets M&S’ act together.
He may well yet do so, but I suspect that it will have to be at the cut-price end of the market, which may be part of the reason for ditching Baird, or at the niche end, which may be why there have been indications that the St Michael brand is no longer sacrosanct.
But it can’t have it both ways. Bland faith won’t do – M&S is a store in search of a role. Its challenge seems to be that the likes of young fogeyette, Petronella Wyatt, writing in The Spectator, is its biggest, breathless fan. I think that tells us all we need to know.
George Pitcher is a partner of issue management consultancy Luther Pendragon