M&S scales down plans for revamp of stores

Oct 3 2008 by Iain Laing, The Journal

Marks & Spencer has found itself in the wrong part of the market since the credit crunch hit home and consumers tightened belts.

The retailer’s premium-end food offering is being snubbed by shoppers while the embattled retailer has also come unstuck due to misplaced trading strategies, analysts said.

While M&S has suffered from the slowdown, some City critics say its decision to pitch itself against cheaper competitors, combined with its promotion of high-end goods, has only added to the store’s woes.

The chain, which has been synonymous with the top end of the food market, started promoting its premium products just as shoppers began to rein in their spending.

But its market position as a ``top up and treat" food retailer meant customers could easily by-pass the shop and head for other supermarkets, analysts at Investec Securities said.

Executive chairman Sir Stuart Rose said that M&S’s ``Meal for two for £10" promotion had been ``spectacularly successful".

The group is ready to take the resultant margin hit but he emphasised it is not prepared to compromise on standards - which could hammer profits. ``We trade at the top of the quality tree," he said.

But the chain has also been squeezed by premium ranges such as Sainsbury’s Taste the Difference and Tesco’s Finest products.

``In times past it served as a restaurant substitute when consumers were under spending pressure, but increasingly the mainstream supermarkets compete effectively on premium ranges," Investec said.

When Sir Stuart took over as chief executive in 2004, he vowed to turn around the fortunes of the retailer’s sluggish clothing range.

He promised to lure back neglected female customers in the 35-55 age bracket with more fashionable ranges and lower prices.

He brought in Kate Bostock to revamp womenswear and introduced the trend-conscious Per Una range with Asda’s George Davies at the helm.

With the help of a string of high-profile advertising campaigns, featuring Sixties model Twiggy, boy band Take That and Myleene Klass, M&S clawed its old market share back.

By April last year, it hit an 11.1% percentage share - meaning £1 in every £10 spent on clothing was spent in M&S.

But its market share is propped up by its ``bread and butter" line of clothing basics and underwear, which are being squeezed by discount competitors.

The entry of Primark and supermarket clothing ranges into the market has undermined the number of T-shirts, knickers and socks the retailer can sell.

The chain has fought back with price cuts, helping the company hang on to its dominant share of the clothing market. But its outerwear has struggled to shake off its frumpy image, while the slowdown has added to the damage.

Sir Stuart is optimistic about the group’s new clothing ranges for autumn and winter. ``I believe we’ve got a better range on clothes than we’ve had for some time," he said.

But Panmure Gordon’s Philip Dorgan warned: ``The problems in clothing are well documented, but it is the problems in food which could create the largest hole in profits."

One of the saving long-term graces could be the strength of the M&S name.

``We believe that M&S has enormous brand value and that this is worth more than the current share price," Mr Dorgan added.