Marks and Spencer: Under pressure to deliver

Boss Marc Bolland hopes a new distribution centre and fashion ranges will reverse the retailer’s fortunes, says James Thompson

When Marc Bolland opens Marks and Spencer’s fashion show at a swanky venue in London on Tuesday night, the bright lights may lead to beads of sweat on the Dutchman’s forehead. The chief executive of M&S may also perspire due to feeling the pressure of unveiling its autumn and winter collection, which has already been widely billed as make or break for Mr Bolland after seven consecutive quarters of falling clothing sales.

Patience among some investors, such as Standard Life, appears to be wearing thin and if its dire trading in fashion continues after the latest ranges start to land in the summer then Mr Bolland could be a marked man by the time of its half-year results in November or Christmas trading statement in January.

The former Heineken executive will not have envisaged presiding over clothing and homewares sales down by 3.8 per cent in its last quarter, a second consecutive year of falling profits and a revolving door among senior executives when he took the helm three years ago. Ahead of this week’s fashion show, Mr Bolland had the less glamorous task of taking analysts and press round its massive new e-commerce and national distribution centre in Castle Donington in the East Midlands three days ago.

But the automated 900,000 square feet facility – the size of 11 Wembley football pitches and 25 metres high – will have a far more significant impact on the retailer’s long-term future than two seasons of clothing.

M&S directors pulled no punches on Wednesday in lamenting how it had “under-invested” in its IT systems and logistics for more than 20 years. Alan Stewart, its finance director, said: “Overall, we have a slow and expensive supply chain with poor availability and this represents a big opportunity for us.”

To exploit this opportunity, M&S is investing £1bn over the six years to 2016 in its technology and supply chain, in an effort to drag it into the 21st century and realise annual benefits of £300m. For instance, M&S had 110 regional distribution centres in 2009 but plans to have just three by 2016 in Bradford, Castle Donington and the south-east. Along with sourcing efficiencies, the retailer’s new distribution network aims to slash its costs by 40 per cent and reduce delivery times from ports to shops by 70 per cent.

Since 2010, the upgrade of its food systems has already delivered a 3 per cent uplift in product availability on its shelves and it is targeting a 9 per cent improvement for its clothing and homewares. Such an outturn over the next three years would see investors doing cartwheels.

For e-commerce, the masterplan centres on two key areas: M&S moving off the Amazon platform next year on to its own, and the Castle Donington facility, which is a high-tech labyrinth of cranes, conveyor belts and computer systems. The cavernous warehouse will be able to process 1 million items a day – 300,000 from its website at peak – and hold nearly all its non-food inventory for online in a single location.

Laura Wade-Gery, the head of e-commerce at M&S, said: “This [Castle Donington] is an enormously important milestone for our e-commerce business and our plan to be a leading multi-channel retailer.”

M&S said surveys showed that only a relatively small proportion of customers ranked it as “excellent” for its online stock availability and delivery service. Ms Wade-Gery, the former online chief at Tesco, said: “E-commerce has become the cuckoo in the business nest. It has outgrown our business infrastructure. Our delivery proposition and availability is not as good as customers would like.”

Its contract with Amazon, which expires next year, has not only restricted M&S’s ability to sell overseas but also the functionality required for a clothing website. Mr Bolland said: “We have to be agile and flexible as this world is changing.”

But online still only accounts for 15 per cent of M&S’s total sales, compared with about 35 per cent at rival Next. The 129-year-old retailer is targeting web sales of between £800m and £1bn by March 2014 but rival John Lewis said last month its annual online revenue had already smashed through the seven-figure barrier.

A key part of M&S, which has more than 700 UK stores, moving to a “market-leading” online service will be the launch of next-day delivery over the next 12 months and ultimately same-day delivery. It currently delivers to customers within three to five days, although shoppers can pay a premium of £4.95 to get goods the next day if they order before 7pm.

However, for all this to work, M&S needs to unveil clothing ranges on Tuesday that consumers, particularly women, en masse want to buy. Following Mr Bolland putting in a new clothing team in October, the autumn and winter collection will be the first delivered by John Dixon, the M&S lifer and head of general merchandise, and Belinda Earl, its style director and former chief executive of Jaeger.

Maureen Hinton, the director of research at Verdict, says: “Because they are the market leader and have so many stores, M&S have to appeal to all women. The problem at the moment is that they are only appealing to a relatively small number of its older, loyal shoppers.”

Despite the hype around next week’s event, the feeling is that Mr Bolland will be given time to turn around the M&S tanker, although calamitous summer and autumn trading could have investors sharpening their knives. Indeed, M&S, which has more than 400 stores in 44 countries overseas, is still forecast to have delivered pre-tax profits £658m over year to March, although this would be a 7 per cent decline.

More positively, the food business, which accounts for more than half of group revenue, has thrived and posted underlying sales up by 4 per cent in its fourth quarter. This represented its 14th consecutive quarter in positive territory on food.

Sources also believe that Robert Swannell, the chairman of M&S, is a cautious and conservative chap who is unlikely to wield an axe in the boardroom unless investors put a gun to his head, which does not seem on the cards.

Clive Black, the analyst at Shore Capital, says: “I don’t think Marc Bolland is under special pressure and I think he puts as much [pressure] on himself as outsiders do. That said, the heat will rise if the autumn and winter ranges flop.”

Castle Donington: From rock to groceries

In the 1980s and early 1990s, Castle Donington was best known for the Monsters of Rock concert, where legends, such as Van Halen, Ozzy Osbourne, Mötley Crüe (pictured) and AC/DC banged their heads. Since then, the village has not had much to celebrate, but Marks & Spencer this week changed the music by unveiling plans to create more than 1,500 jobs at its huge new distribution centre there.

This is particularly positive news for disabled people and the long-term unemployed, as M&S has vowed to recruit a third of the facility’s staff from these backgrounds.

This recruitment policy at Castle Donington with Remploy builds on the long-term work M&S has done with the same specialist employment agency to hire staff in its stores. The retailer’s executives said they were “proud” the facility in Castle Donington was providing work to people, such as a man who had been unemployed for more than 15 years.

Marc Bolland, the chief executive of M&S, said: “As we are recruiting a significant proportion of employees through our Marks & Start Logistics scheme for people with disabilities, this investment in the UK is a unique combination of state-of-the art technology and a great social working environment.”