Our Head of Retail Consultancy, Jonathan De Mello, did this Opinion piece for Retail Week (Published on 4th December 2017). Hope you enjoy reading it.
Why Marks & Spencer is right to review new store developments
Though clearly a hard decision to make – both in terms of the impact on jobs and politically – I firmly believe Marks & Spencer is making the right decision in undertaking a review of its current and planned store portfolio with a view to reducing the overall size of its trading estate in the UK.
A review of potential new store openings for both in and out-of-town developments is no surprise, given – like many UK retailers with large legacy estates – it simply has too many stores in an omnichannel world.
A number of its stores are not fit for purpose in terms of size or configuration, or are in areas that don’t have the right demographic fit.
Politically it is clearly difficult for M&S to close too many existing stores in the UK all in one go given that in many small towns where there is an M&S and little else, it is a major employer.
Reviewing/pulling out of new developments that it had committed to is lower hanging fruit in a sense, given no jobs would be lost in doing so.
However, M&S faces potential legal headaches on multiple fronts should it execute such a plan, with the likes of Rochdale council implicitly threatening legal action against the retailer if it does pull out of its planned new store in the town.
“Ultimately M&S should look to trim its UK store portfolio by 25%+, especially in the context of Brexit as costs will clearly rise on the UK’s exit from the single European market”
M&S has been closing stores to a certain extent by stealth over the past couple of years, with the majority going to value retailers such as Poundland (Rhyl, Nuneaton, Skegness), Poundworld (Ashton-Under-Lyne, Rotherham), B&M and others.
Store closures aren’t happening quickly enough, however, as more cost needs to be taken out of the business.
M&S – like many retailers – has a portfolio where the top 30% of stores contribute circa 60% of profit – ie, a decent chunk of stores generate limited profit, and from an overall percentage margin perspective are potentially dilutionary.
My view is that ultimately M&S should look to trim its UK store portfolio by 25%+, especially in the context of Brexit as costs will clearly rise on the UK’s exit from the single European market.
However, there are clearly more fundamental issues at play with M&S than purely its store portfolio – its share of the UK fashion market continues to decline, and the offer itself has too many conflicting ranges and styles.
M&S fashion continues to attract an older shopper, which is at odds with food, which has a very defined market position and – in the case of Simply Food at least – a younger, urban and affluent shopper.
M&S’s rebranding last year of 45 clothing shops in smaller centres into Simply Food stores was a good move in that context – and I would expect more of the same in any future announcement on the store portfolio M&S might make.
The retailer’s shoppers typically prefer large, out-of-town stores. Focusing on providing a full offer in those environments (which are also lower-cost per square foot) and downsizing/focusing on food-only in less profitable, smaller high street locations makes eminent sense.
M&S is certainly not alone in undertaking a review of its property portfolio in these rather challenging times.
The majority of established UK retailers I speak to are doing the same – and are right to do so.
The alternative to not planning ahead is a more drastic change – in the case of Toys R Us it is a CVA, which is a vehicle I anticipate some other retailers to deploy post-Christmas if they did not have the foresight to plan ahead.
Despite last week’s reports of ‘retailers closing 14 stores a day’, the future of the UK and European retail property market still holds great potential …Read more