How Marks & Spencer plans to double down on digital to compete with online pureplays and survive the COVID crisis

Profile picture for user slauchlan By Stuart Lauchlan November 16, 2020 Audio version
Summary:
M&S is a UK retail heritage brand that's had its omni-channel transformational ups and downs in recent years, but there's an added vim in the air as it doubles down on digital to get through the COVID crisis.

M&S

The havoc wreaked by COVID-19 on the retail sector has been well-documented on diginomica this year as have the various responses - successful and less so - of individual retailers. With the crisis ongoing and, even with the encouraging vaccine news, likely to continue to do so well into 2021, those responses continue to roll out.

Last week UK retail institution Marks & Spencer (M&S) chose the inauspicious date of Friday the 13th to roll out a vastly expanded scan, pay and go app-based service throughout all its 573 food stores across the country. The solution was first piloted pre-lockdown back in March in London, but the COVID outbreak and the need for strict hygiene measures has made its use to eradicate the need to use shared checkout tills a major asset.

Other grocery outlets, deemed of course to be essential services and as such open throughout the duration of the pandemic, have apps to allow shoppers to scan the price of goods during their shop, but still require payment to be made at checkout terminals, which then need wiping down and sanitising by store employees. The M&S app goes one step further and eliminates that need.

The app has built up a user base of around 20,000 so far in its trial phase, but the nationwide launch should see that number expand rapidly. In a statement, M&S Stores Director Helen Milford said:

We want to help our customers shop with confidence – especially as we head towards Christmas – and that’s why we’ve accelerated the roll out of Mobile Pay Go to all our UK stores. With the current restrictions in place, making shopping as easy and efficient as possible is really important to us and to our customers. Mobile Pay Go helps do just that – it’s quick, contact-free and means fewer queues at our checkouts.

The only downside to all this - a spending limit of £45, which makes it unlikely given M&S price margins that the app can be used to complete a weekly food shop!

Double down digital

Nonetheless it’s a good example of M&S benefiting from its declared doubling down on retail tech as articulated by CEO Steve Rowe:

Over the past few years, you've heard me talk about the importance of technology and digital to changing the way we operate across the business. Our market-leading partnership with Microsoft enables more flexible working through the pandemic and many of these changes will be made permanent… It's also about the efficiency and productivity of our operations. A core part of this has been the rolling out of in-store technology through our partnership with Microsoft, as well as embedding the more flexible and productive ways of working we established during lockdown. Bringing this together has created a substantial opportunity for cost savings and greater productivity with an annualised saving of £115 million as a result.

Such savings will come in handy given that M&S just turned in its first losses in its 136 year history, due in large part to enforced closure of its non-food parts of the business during the virus outbreak. Rowe has made it clear that with Christmas now looming and a fresh lockdown in the UK in place until - theoretically - early December, the firm will be looking to digital and online with an ever-greater dependency and in the face of ever-greater pressure from pureplay competitors. He says:

We have been clear that we need to go further in a market increasingly driven by pureplay retailers. That's why I'm building on the investments we've made in the past few years in data digital and online capability to create a single team focused on step changing online growth called MS2.

MS2 is a major shift in organisational approach, one that is intended to embed digital thinking and approaches firmly into the M&S corporate DNA as never before. Online has been the one area this year that has delivered returns for the retailer, but there’s a need to go further to “turbocharge online growth”, argues Rowe:

Over the past few years, we have invested in developing our data and digital capabilities to enable growth in our online business. This investment…has meant we have been able to respond to the step change in online demand during the pandemic. However, given this step change, we must go further to compete more effectively and sustain the growth we've seen. We are therefore bringing all of our online digital and data capabilities together as one team within Clothing and Home to embed that pureplay mentality and ways of working that we began to adopt during lockdown. All of this is under the banner of MS2.

I'm clear [about] our advantages in having a seamless bricks-and-clicks customer offer and developing this [MS2] team is about embedding a way of working to accelerate growth in our Clothing and Home business, not just to improve our website. It will work separately in parallel with our stores business and is very much part of Clothing and Home rather than a separate business unit. MS2 will though have greater flexibility on product presentation and pricing and weighted focus on social marketing. It will also lead on our work to build a portfolio of curated brand partnerships, which we started recently with the launch of Nobody's Child, [an eco-conscious fashion brand for women].

The work we're doing on our end-to-end supply chain is fully integrated with this, so that however, wherever, whenever our customers want to shop with us, the experience is seamless and convenient. By harnessing all of these parts of the business under one team, I'm confident we can set a realistic ambition of over 40% of sales online in three years time.

Ocado onwards

Whether that target can be met remains to be seen of course. For now, the big online story of 2020 has been the long-awaited launch of the M&S/Ocado online grocery ordering and delivery service. This kicked off successfully on 1 September, perhaps surprisingly given the months of lockdown that preceded this and which might have been expected to knock plans off course. Far from it, according to Rowe:

The M&S and Ocado teams have done a phenomenal job and we're working together with a real 'one business' mentality. For the first time the full M&S range is now available online. It means Ocado can offer more choice and better value than the previous supplier. In order to execute the switchover, the teams have substantially stepped up M&S product development in key areas. Many of these lines are also now available in store and have been well received. In addition, we've made selected Clothing and Home lines available to customers through the platform and the initial customer response there is encouraging.

Since we made the investment in Ocado last year, there's been a step up in online sales participation and the market growth rate as the trend to online shopping has accelerated through the pandemic is clearly encouraging and confirms the opportunity for growth. We identified at the time of the investment last year, Ocado has substantial pools of available demand ready to tap into from existing customers looking for delivery spots to M&S customers who are able to shop the full food range online for the first time.

Such is the perceived opportunity ahead - and the ongoing demand for online services at a time when real-world shopping is effectively on hold - that M&S intends to ramp up investment in 40% additional capacity via three new Customer Fulfilment Centers to meet demand and avoid those achingly-long waiting lines for service that were seen earlier in the year.

As noted above, the next big challenge is Christmas. If the current UK national lockdown does end as promised on 2 December, there will still be a tiering system of restrictions that will inhibit shopper footfall in-store in large parts of the country. Rowe insists that M&S has the digital tools in place to make things work:

Clearly it's going to be a peak like no other. So we're using all the learnings from how we adapted to trade through the spring and summer to make sure we do everything we can to keep Christmas special for customers and colleagues...We are building on the work we've already done to give our customers the confidence to shop with us. This includes dedicated hosts to explain the measures in place and count customers in-store via an app connected across all entrances. In addition, we will operate extended December trading hours to ensure additional capacity.

We're supplementing these measures with new digital tools to make shopping easier, such as our Book-and-Shop app. Online distribution capacity has been increased to meet peak demand through expanding the team at [our] Castle Donnington [distribution center], ensuring our mezzanine floor is fully operational and introducing two new auto bagging machines, nicknamed Penny and Percy, which can pack over 2000 items an hour.

He concludes:

We are well prepared to deal with restrictions that are in place for [now] as well as any other changes that may come to pass and to deliver for our customers. Fundamentally, my goal is delivering a long term transformation of the business. Through the decisive steps we are taking, we will deliver a renewed and stronger business in a world which will never be the same again.

My take

I’ve been a keen user of the M&S/Ocado service since September and am pleased to report that it works very well so far, in my part of the world at least. The transition by Ocado from its former Waitrose partnership to the new world of M&S went seamlessly from the PoV of this customer at any rate.

The MS2 move is an interesting gambit and I suspect a welcome one. As we’ve noted in the past, heritage retail brands can struggle to embed digital-first thinking into their day-to-day DNA and end up putting out some on message press releases following by some ineffectual digital ‘dad dancing’ - see Debenhams as the prime case in point in the UK, for example. While I’ve been critical over the years of M&S’s seeming unwillingness to push into the online grocery business - not least from CEO Rowe himself! - the firm has been making some savvy digital investments elsewhere, most notably its Microsoft tie-up.

The losses just reported are a bad psychological blow for the firm, although given the red ink creeping over the entire retail industry balance sheet, the pain is somewhat masked amid the wider sectoral trauma. Rowe is talking a good transformational game, but it’s undeniably had its bumps along the way. Will the latest moves translate into results? I’m inclined to agree with commentary from analyst house Hargreaves Lansdown here:

M&S has attempted to reboot itself a few times, but this one feels a bit different. It's been forced to supercharge its efforts because conditions are so tough. This time around almost 8,000 members of staff are being cut, many stores are marked for closure and there are gargantuan efforts to integrate the online and physical stores. The latter is particularly important - coronavirus has accelerated the shift to online and if Marks wants a chance to compete it needs to act quickly.

M&S is doing all the right things to sort its problems out. But we wonder if this gusto has come too late. Ultimately, we think the M&S brand will survive both coronavirus and the high street's revolution. But thriving on the other side will depend on whether the newfound momentum and strategic competence can be maintained.

Big questions to be answered in 2021.