At long last, Marc Bolland ekes an annual growth out of M&S, but it's not over yet
20th May 2015
Photo credit: Marks & Spencer
It’s been a long time coming. After countless turnarounds, shake-ups and relaunches, Marks & Spencer has announced its first rise in annual profits in four years.
Group sales rose 0.4 per cent to £10.3 billion in the year to 28 March 2015, with underlying profit before tax up 6.1 per cent to £661.2 million, ahead of analysts’ forecasts.
It will be with a sigh of relief that chief executive Marc Bolland delivers these figures.
With quarter after quarter of investors questioning whether Bolland could turn around the high street stalwart in time, he’ll no doubt be feeling some respite in the results.
Speaking this morning, Bolland said the company had managed to make “good progress” in three of its four priorities for the year: “In Food, we had an outstanding year in a difficult market. In general merchandise, we significantly increased the gross margin, and, while sales performance was below our expectations, we returned to growth in the fourth quarter.
“We are transforming M&S into a stronger, more agile business – putting the right infrastructure, capabilities and talent in place to drive our strategic priorities.”
No one can deny M&S a win in a cold climate. But while the chief went on to tell the BBC’s Today Programme his company had managed to deliver the improved results despite trading in the most difficult retail market in 15 years, analysts may not be as keen to see these gains as the end of M&S’s troubles. It’s here where the same arguments that have been dogging the department store for years come to the fore: do consumers really want a brand to provide everything under one roof, or would they prefer a specialist- as seen in the phenomenal rise of M&S’s food lines? Can the business really compete with the fast fashion giants on the high street? Will womenswear ever deliver the gains M&S seems determined to achieve?
Photo credit: Marks & Spencer
Let’s take a look at what’s happening behind the results.
First up, general merchandise. Having been overtaken by Next as the country’s biggest clothing retailer, M&S’s annual profit came in beneath its rival for the second year in a row, and made well below the £1 billion in annual sales achieved in 2007 and 2008.
General merchandise’s gross margin showed strong growth- up 190bps, with what the retailer described as “significant sourcing gains and slightly lower discounting”. However, its sales performance remained challenging and failed to meet expectations, despite positive like-for-like growth in the final quarter.
Commenting on the results, Natalie Berg, director of Retail Insights at Planet Retail, said: “[M&S] are not and never will be a fast fashion company. One of the reasons retailers like Next and Asos are so profoundly successful is because they have a very clearly defined target market. M&S, meanwhile, continues to chase younger shoppers while attempting to stay relevant to their core mature customer. The new Limited London capsule collection debuts next month, but do M&S shoppers really want cropped t-shirts and skinny denim dungarees?
“In today’s crowded market, retailers can no longer be all things to all people. As we have seen with M&S’ own food business, retailers today must have a distinct, targeted proposition in order to stand out among their peers.”
Marie Gillain, Alison Rose, Marc Bolland and Patrick Bousquet Chavanne at the opening of Marks & Spencer Toison d'Or in Belgium. Photo credit: Marks & Spencer
Internationally, M&S said the business had been impacted by “macro-economic” issues, with operating profit down 24.8 per cent to £92 million. The retailer warned that the hits were short term- a weaker euro and especially tough trading for its franchise territories. Russia, Ukraine and Turkey were all impacted by political instability, while lower consumer demand in the Middle East led to some de-stocking by M&S’s franchise partners. However, there were some gains to be made. After restructuring its Irish and Czech Republic businesses, the retailer said it was pleased to see an improvement in profits in both markets. M&S also opened 12 new stores in India and continued to see a double digit like-for-like performance. To top it off, brand new food stores in Paris and Hong Kong managed overall sales per square foot ahead of the Simple Food stores in the UK.
Online, sales fell 2.0 per cent for the year, as M&S admitted that the new site had “presented a bigger change for our customers than anticipated, which impacted sales”. After some issues at its Castle Donington distribution centre over Christmas, the business worked to improve systems, with sales returning to growth in the fourth quarter, and reporting improvements in traffic, customer satisfaction and conversion rate.
In Food, long the saviour of M&S’s operations, the retailer managed to outperform against a competitive market by 3.5 points, delivering 22 consecutive quarters of like-for-like growth with sales up 3.4 per cent and 0.6 per cent like-for-like. M&S said it had focused on being ‘more relevant, more often’ for its customers, introduction 1,700 new products, and new categories such as frozen meals.
As Phil Dorrell of Retail Remedy commented: "Food remains the hero of the piece, but these results at least hint that M&S is returning to what it should be - a clothing retailer with a successful sideline in food, rather than a successful food retailer with a moribund clothing business holding it back."
M&S Cheshire Oaks interior. Photo credit: Marks & Spencer
The figures reported on Wednesday bear some of the fruition Bolland hoped the billions of pounds he spent investing in M&S would show. After years of redesigning stores, products and supply chain logistics, this could be what it looks like to M&S get back on its feet.
“Let’s not forget that Marc Bolland, despite having had very big shoes to fill when taking over five years ago, inherited a host of legacy issues,” Berg added.
“He has brought one of Britain’s most iconic brands into the 21st century, putting in place vital new infrastructure, ultimately making M&S a more agile and digitally-aware retailer.”
It’s been Bolland’s aim all along to focus on boosting profit margins, and this morning he announced a rise for the 2014-2015 annual results for general merchandise of 1.9 percentage points, across clothing, footwear and homeware. But as Dorrell points out- there’s still a long way to go.
“One strong season does not a turnaround make. But at least it is an indication that M&S’s core business has stopped misfiring at last. Marc Bolland still has a mountain to climb. Look beyond the flagship locations and many M&S stores are still a mess of baffling sub-brands. The relaunched website struggles to inspire, and the brand's much-hyped new distribution centre is still suffering teething problems. Dealing with the brand's legacy problems will take much longer - but a clear return to growth after such a long decline will give him the mandate he needs to drive through more changes.”
Changing a nation’s perception of an under-invested department store (albeit with a hugely successful food line) will take years- if not a generation. For Bolland, today’s results will hopefully mark the first day in a long route to recovery.
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