Digital direction at last or another false dawn for M&S?

Stuart Lauchlan Profile picture for user slauchlan May 23, 2018
M&S is closing 100 stores and wants a third of its clothes and home business coming from online. Big ambition given its digital laggardness.

Marks & Spencer Chairman Archie Norman summed it up nicely as the UK retail institution outlined its latest survival plans this week:

We’re deeply conscious of the fact that our middle name is ‘false dawn’.

There’s a clear sense of  ‘we’ve been here before’ about the firm’s latest update. But at the moment, any glimpse of sunlight would be welcome.

Marks & Spencer (M&S) just announced a 62% slump in statutory pre-tax profit to less than £67 million. It now plans to accelerate its store closure programme to axe 100 UK outlets by 2022. The loss of revenue from those stores needs to be addressed and as such M&S now has an objective to make at least a third of clothing and home sales online.

That’s a hell of an ask. Currently less than 19% of total clothing and home sale comes via online channels. The website still doesn’t work well enough. The automated e-commerce distribution warehouse in Donington has had a series of well-publicised problems in meeting such demand as does exist.

Oh, and M&S still doesn’t have a viable online grocery strategy in place - or even in mind!

CEO Steve Rowe talks about “a transformation journey, a journey that started with the business having to have a clear, right view of the facts; no illusion; no mystery”.

Some of those facts are brutal:

We’ve talked about our  number 1 priority being digital, but we know that we’re behind the curve in digital. While we’re Number 2 in the market online in Clothing & Home, our growth has not been in line with the market over the last few years. And in actual fact, we’ve been losing share online.

We need to have a third of our business online in 5 years. And if we do that, that will maintain our market shares. But our site today is too slow. Our search engines are not optimized. Our delivery and proposition to customers is not best-in-class. And we still have to fill key roles in our digital and data management.

None of this is new news, but M&S has seemed incapable of tackling the problems head-on to date. IT spend is less than a third of total CapEx and actually fell year-on-year. That can partly be attributed to the completion of some tech rollouts, such as in-store WiFi and handheld devices, but there’s going to need to be an uptick in budget allocation.

Some additional funding will come from cost-cutting as the store closure programme proceeds, with Rowe stating that the online targets have influenced the decision-making process here:

We forensically examined the store estate based on a third of the business being online. We looked at it. We used gravity feed models. We fed them with where we believe there will be shop incentives in the future...We’ve continued to model customer movement around those and make sure that we’ve got a representation across the country.

The key thing is, though, that the stores themselves have become marginal or loss making over a long period of time. They’re located largely on high streets, many of them over 70 years old. They’re not of a scale we wish for the future. And importantly, they’re not investable here. These are stores we can’t afford to modernize.

Digital shopping list

Rowe has a lengthy digital shopping list to hand and it’s a major programme of change if he pulls it all off:

We have to become world class in our data analytics and in our digital development, and we’ll be working on that over the next few months.In terms of that digital development, it’s imperative, a third of our business online. And we’re not best-in-class.

We need to make sure we are working our digital marketing. We’ve developed with Instagram one of the first retail solutions, but these are just small stepping stones to giving us a first-class digital operation. We need to rebuild our pages. We need to make sure that the front end of our website is seamless on any device, whether it be on mobile, a laptop or a tablet. And importantly, we must upgrade our search capability, whether it be through Google or even internal search on the website.

Oh yes, the website. The online ‘store entrance’ for M&S - and it basically sucks. Rowe admits that the work that the firm needs to do in 2018 is stuff that shouldn’t even be an issue now:

What we’re working on now are the real basics, the speed of our site.. I’m pleased we’ve made some improvements. The PDP load rate has come down from over 4 seconds, one of the worst in the industry, to just under 3 for the first time. Unfortunately, our payment speed is still over 4 seconds.

At the moment, our search engine, as I said, is difficult. And in terms of our aspiration that was on our website, ‘look, you can click on them if you like’, it’s not good enough here. So, we’ve got to do a lot of work there because, in the future, all of the research is going to be done on a handheld device.

The pain point isn’t so much traffic, he adds:

It’s a conversion issue at the moment. And that really feeds back into internal search in the website, not necessarily inspirational pictures; difficulty to navigate etc. So, [customers are] dropping out in a number of places. Payment load speeds were too high. And that’s another place we see drop out.

There are supply chain work issues that remain a problem as well. Rowe says:

Seventy-two percent of our merchandise ordered online is collected in stores, shipped from [the automated warehouse in][ Donington. We have about 15% to 20% of orders, which are bought online and sourced in store, which at the moment is quite a clunky process. We could not deploy that and to scale. We need to do quite a bit of work there, but it is important for the future.

Now these key activities are all underway, but we’ve got much more to do. Importantly, we need to make sure that our proposition from Donington is robust. We’ve got plans to make sure that, the next two years, we can upgrade the proposition, but we will be working on a new solution for our e-com distribution over the next two years.

I know we’re Number 2 [in clothes and home], but we could do so much better. I do believe that, if we fulfill these basic things, we can start to move forward with an online operation, which will deliver a third of the business.

Store upgrades

As for the stores that escape the axe, the ones that can be modernised, M&S has completed a rollout of Honeywell mobile devices for use in-store. These are delivering operational efficiencies, says Rowe:

We’ve upgraded the number of apps available on Honeywell, whether it be from stock accuracy to ordering from the fridges. There are more than 10,000 of these in circulation in stores now, and we’re continuing to increase the numbers. We’re also building our own apps for labour scheduling, which we’ll roll out during the course of the summer; and also, for other M&S-designed apps in our food-ordering system.

What are the next stages? Well, the first thing we have to do is make sure that our collection of online merchandise in store is more appropriate for the future. Seventy-two percent of our merchandise sold online is distributed through a store. We need to make sure that that environment is welcoming and appropriate. We need to make sure we modernize customer payments, whether that’s online or in stores.

All of this is going to take time, of course, as Rowe admits:

The front-end technology which unifies the view across all the different devices, that’s going to take a bit of time, about 6 months. We’re working on that now, but once we land it, every time we change it, it will automatically update all the different profiles. In terms of site speed, that is being worked on literally a daily basis. And we have really shown customers an improved PDP page speed, as I said, of under 3 seconds. The checkout work is a bit more complicated, and so is the search engine. And the search engine optimization

The internal search. [issue] starts right at the beginning of product development. We [need to] go right back to look at the key terms that were put into the system. So, I’m expecting that to take a little bit longer, but there are improvements literally bit by bit every day, much more to do. We’re a long way from best in class yet.

As for the elephant in the room - online grocery - M&S remains without a solution. There have been very limited trails of a grocery delivery offering, but rumours that there would be an expansion of these announced this week have proved one of those false dawns that Norman referred to.

Rowe continues to take the cautious stance that he’s held for some time:

We’ve seen the first sets of results. There are some interesting things, and what I want to do is have another look at some other options in terms of the offer to customers because I’m not going to rush into this. This is a business that is very difficult to make money in, particularly when you’ve got the construction of our ranges and our basket size. Whilst we’ve seen some interesting things, it’s not a basis to make an investment.

He concludes with what is essentially a plea for more time to try to fix things:

This phase we’re in now has to lay the foundations for a business of the future. When I talk to my team, I describe this journey as a marathon. And so, we’re clear about where I think we are. We’re probably about mile 3 or 4. We’re just running down towards Woolwich. We haven’t made it to Cutty Sark yet.

For those not familiar with London geography, that’s not very far at all.

My take

One of the things that Rowe said was that:

We need to embrace new technology partnerships. We’re working on that now, and we’ll talk to you about that in the near future.

The firm has a successful digital transformation partnership with TCS, but Rowe’s comment reads more interestingly if he was talking about a rather different type of partnership with a different sort of tech vendor.

What if M&S rolled a far bolder dice to get out of its current mess? Such as a tie-up with Amazon, one that included - indeed, was built on - M&S grocery and food business?

One of the problems that M&S has had with online grocery, apart from basically ignoring it and hoping it would go away, is that the way people shop for food in M&S is different to, for example, Tesco or Sainsbury’s. Rather than doing the weekly big shop, M&S food customers drop in for a meal or two at a time, hence the growth of the smaller food-only stores. That different basket size has an impact on operational costs for online.

But Amazon has no issues with delivering small items. It’s got the infrastructure. It’s got the delivery model. It’s got the grocery ambitions.

Maybe just a pipe-dream on my part, but a guy can dream of the day that my M&S groceries get delivered, can’t he?

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