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 While the 130-year-old firm's general merchandise (GM) division -
clothing, footwear and homewares - has posted 12 consecutive
quarters of declining sales at stores open over a year, its food
business has delivered 19 straight quarters of like-for-like sales
growth.
"This business hasn't had foods and GM firing on all cylinders
together for a long time. I think we're very close to having a
position where both the food and GM businesses are working
positively," Steve Rowe, executive director of food, told Reuters in
an interview at the firm's London headquarters.
"There's a love affair between M&S and the consumer, and when you
upset your lover, sometimes it takes longer than you think it's
going to take for them to forgive you," said Rowe, a 25-year M&S
veteran.
While the food business was continuing to win market share with a
strategy to specialize more and focus on quality and innovation, he
said there were also "really good positive signs" coming out of
womenswear, its biggest clothing segment.
"I don't think we'll have a poor Christmas (in GM)," he said. "We
all believe it is time to deliver."
Under Marc Bolland, CEO since 2010, M&S has posted three straight
years of profit decline despite spending 2.4 billion pounds ($4
billion) to address decades of underinvestment.
Analysts do, however, expect profit to rise significantly over the
next three years.
M&S's food business is outperforming the wider British grocery
market - which is growing at its slowest rate for over a decade -
and contributed over half of total group sales of 10.3 billion
pounds in the 2013-14 year.
The firm does not split out food's profit contribution, but analysts
estimate it generates about 35 percent of UK profit, reflecting
lower margins and higher operating costs than in general
merchandise.
DIFFERENTIATION
M&S, which trades from 809 UK stores, 763 of which sell food, has a
strategy that sets it apart from Britain's so called big four
grocers - Tesco, Wal-Mart's Asda, Sainsbury's and Morrisons
- which are being hurt by the rise of discounters Aldi and
Lidl.
Tesco and Morrisons have both issued profit warnings, while upmarket
Waitrose [JLP.UL] has also cautioned that its period of
unprecedented investment will affect profits.
"The biggest single lump (of trade) is coming from the middle and
moving to the discounters, but we're gaining from the middle, and so
are Waitrose," said Rowe.
M&S, which has 4 percent of the UK food and drink market, has not
suffered the same pressure from discounters, because it sells mainly
own-label produce, so only 10 percent of its food catalogue is
directly comparable with the core product of the big four.
Consumer trends of shopping around, buying little and often and
wasting less are also playing to M&S strengths, given its estate of
459 Simply Food convenience stores, a large proportion of which
carry a much bigger range of products than the smaller convenience
stores of the big four.
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Some 41 percent of M&S's customers "shop for today" - buying produce
to consume on the day of purchase. That compares with about 25
percent at the big four.
Rowe noted that 67 percent of consumers who shop at M&S also shop at
discounters.
"People are happily going in to buy some basic items from Aldi and
then coming to us for their top-up items," he said.
"If you want something special, you don't go to Aldi or Lidl. If you
want to make sure your turkey at Christmas is the best, you come to
me," said Rowe, pointing out that M&S sells one in four turkeys sold
in the UK at Christmas.
M&S is also differentiating itself from the competition with its
product innovation - about 20 percent of its product range changes
every year.
On items that M&S cannot differentiate on, such as bananas and
cucumbers, it will match the market on price. But in areas where it
can differentiate, it competes on quality, not price.
Unlike rivals, M&S has not brought down the price of a 2 pint carton
of milk to below 1 pound.
But, says Rowe, its milk sales have not declined. "Why? Because my
milk has more vitamin D and less saturated fat - deliberately."
"The race to the bottom helps no one ... You can always make stuff
cheaper, but normally it involves removing something.
"We pay more money for our beef than other people do. Why? Because I
know where it comes from. I know the field it came from. I know who
its parents were."
The importance of provenance - his own father Joe was an executive
director at M&S until 2000 - and pride in product make Rowe more
than just a passionate advocate for the firm.
He would one day like to lead it, he said.
"The best retailer probably in the world, in my opinion, a company
I've worked for and loved for 25 years, of course I'd love to," he
said.
"Who wouldn't?"
(Reporting by James Davey; Editing by Will Waterman)
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