LONDON – Marks & Spencer is bouncing back, and reaping the rewards of a smaller, more efficient organization. In fiscal 2022 ended April 2, the British retailer swung back to profit and posted a revenue gain of 19 percent compared with 2021, and nearly 7 percent over 2020, before lockdown began.
The outgoing chief executive officer, Steve Rowe, who shepherded M&S through difficult times; slimmed down the bloated organization, and fine-tuned the offer, said that while there was still work to be done, “the business has moved beyond proving its relevance and has the opportunity for substantial future growth.”
As reported, Rowe is passing the reins to two co-CEOs, Stuart Machin and Katie Bickerstaffe, and will be acting as an adviser to the new leadership for up to 12 months.
Rowe joined M&S from school at the age of 15 and rose through the ranks, serving in multiple leadership roles. He took over the top job in 2016 and oversaw a major restructuring and consolidation at the retailer, ramping up the e-commerce offer and guiding the store through the roller coaster of COVID-19.
He also took M&S Food online for the first time through the Ocado Retail joint venture, closed more than 60 stores and rebuilt profitable growth in the international business.
One of his biggest moves was revamping the clothing and home division, slimming down the offer and creating an online marketplace that now offers around 40 third-party brands, such as Ghost and Nobody’s Child, in which the store has a minority stake.
On Rowe’s watch, M&S also purchased and relaunched the British clothing brand Jaeger, which it now sells in-store.
Revenue in the 12 months climbed to 10.89 billion pounds. Profit was 309 million pounds compared to a loss of 201.2 million pounds last year.
The retailer’s tie-up with the home delivery service Ocado helped contribute to the bottom-line gains in the past year as did an ongoing real estate reshuffle that is seeing M&S shut, consolidate and upgrade stores, put a bigger focus on food and move to more strategic locations.
Rowe noted that, last year, the clothing and home division delivered 3.8 percent sales growth compared with 2020, driven by online. Over the past three years the company has reduced its merchandise offer by around 20 percent, which resulted in “good growth” in core categories, and a reduction of the stock that goes into sale.
In total, third-party brands across clothing, home and beauty, including Jaeger, generated around 100 million pounds of orders in 2022.
With regard to those third-party brands, Rowe said the business trades through a wholesale or commission model, with product flowing through the M&S distribution network. The company said it expects to evolve the model to add “dropship” capability, where third-party brands hold the stock and fulfill the order.
He said the overarching aim with clothing and home is to create a contemporary in-house range that’s bought in greater depth, alongside a “family of internal and external partner brands” meant to provide broader choices to customers.
“We are at the very early stages of transitioning to an omni-channel business backed by exceptional data and highly personalized customer relationships, and a more sustainable, profitable model is starting to emerge,” Rowe said of clothing and home.
He said the division saw three consecutive quarters of underlying growth in 2022. Online sales were up 55.6 percent compared with 2020, while in-store sales declined 11.2 percent, with performance “still impacted by legacy high street and city center stores,” which have been suffering from a post-COVID drop in footfall.
During the year, the company also reduced discounting and blanket promotions, while stock earmarked for the clearance sale was down 34 percent on two years ago, which also contributed to profits. “These changes are beginning to be reflected in improved customer style perceptions and are generating increased confidence in the new approach within the core product teams,” the CEO said.
Looking ahead, Rowe said there is still much to do with the clothing, home and food supply chains requiring further investment. In clothing and home, the store will be looking to improve capacity and store operations and also reduce costs.
The stores that carry the full M&S offer remain “out of date and poorly located compared to the competition and although we have made progress,” Rowe said, they need a “more efficient shoppable format to make them suitable for an omni-channel era.”
Overall trading in the first six weeks of the financial year has been ahead of the comparable period last year, with a particularly strong performance in clothing and home. Growth in the total food business continues to outperform the overall market, the company said.
It added that profits in the current fiscal year will not substantially improve due to increasing cost pressures and consumer uncertainty.
On Wednesday, Royal Bank of Canada said the 2022 figures were in line with consensus expectations, with clothing and home EBIT “stronger than expected,” at 331 million pounds versus the bank’s 299 million pound estimate.