Retail FreeView - M&S regroups after dismal clothing sales and the exit of director Kate Bostock

July 12, 2012

Verdict Retail FreeView
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One retail sector that is not suffering from the rain is electricals; its problem is price deflation – unless specialist within the Informa Group.
you are Apple. The queue outside its Covent Garden store this Sunday suggested that Apple stores With almost 30 years' experience,
have become our places of worship now. M&S on the other hand is finding that shoppers no longer Verdict publishes unrivaled
worship its clothing ranges. While rain has not helped the retailer, there are other factors at play. We independent analysis. We provide a
complete picture of the UK and
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arena, helping retailers,
Maureen Hinton, Verdict Practice Leader manufacturers, service suppliers,
analysts, and consultants to fully
exploit opportunities within the
“There was definitely a step back in luxury market growth. But it
industry.
soon became apparent that the people who were really going to
suffer from the downturn were not going to be the extremely rich;
the luxury market started to boom again and has continued to do Latest analysis
so.” Trends and Innovations in European
Patrick O’Brien, Verdict Analyst, in The Guardian, July 4
Convenience Retailing | Verdict Strategic
Report

Pharmacy Retailing in the UK | Verdict

“There are lots of women who used to shop at M&S who now shop Market Report
elsewhere, Bolland’s unfamiliarity with clothing is a problem for the CEO Tesco Personal Care | Customer Insight
as he seeks to fight back.”
Global Department Store Retailing |
Maureen Hinton, Verdict Practice Leader, in Bloomberg, July 8
Verdict Channel Report

Footwear Retailing in the UK | Verdict
Market Report

UK Consumer Satisfaction Index 2012

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July 12, 2012

Verdict View
M&S regroups after dismal clothing sales and the exit of director Kate Bostock

By Maureen Hinton, Practice Leader

As M&S announced declines in both total and like-for- typical loyal shoppers, these shoppers are aging, and Execution has been M&S's main problem. The retailer
like sales in its core general merchandise category in M&S is not attracting younger shoppers to replace needs to communicate individual brand personalities
Q1 2012–13, it also revealed a shakeup in its them. clearly to shoppers in its stores, its marketing must
management structure, including a key exit. The encourage women to visit its stores and website, and
retailer needs to inspire female shoppers and execute Clothing accounts for the majority of its general its stores must be easy to navigate and find products
its existing strategy more successfully to regain its merchandise sales, which were down 5.1% in Q1 2012– in. These are all pillars of its existing strategy, but
prominence. 13, with like-for-like sales down 6.8%. Some of this customers see little evidence of them. Belinda Earl's
decline was attributed to poor merchandising challenge will be to deliver this quickly, which may be
M&S dominated the UK clothing market in the 1990s, decisions, which indicates a lack of confidence in the difficult given she will only be working two or three
and was the prime destination for women of all age company's buying team. Furthermore, there has been days a week.
groups for clothes shopping. In 1997 it accounted for speculation for months that executive director of
16% of the womenswear market; now its share is general merchandise Kate Bostock was looking for a
around 11%, despite adding significant amounts of role elsewhere, which was bound to unsettle the
new clothing space (at least 1 million sq ft) in the buying team even further. Following these latest figures
meantime. Indeed, the fact it is still leader in the it comes as little surprise that she is leaving "by mutual
clothing market is underpinned by it having more consent" in October.
space than any of its competitors; the next largest by
share, Next, has around half the square footage of The challenge for M&S is to inspire women to shop
M&S in clothing, there again. To this end, the company is bringing in
Belinda Earl as style director. She was very successful as
The main factor behind its decline is that the CEO of Debenhams in differentiating and developing
competitive landscape has changed over the past its house ranges as standalone brands, something M&S
decade, and women are shopping elsewhere, be it in has been trying to do with its brands for years, albeit
supermarkets, department stores, value retailers, with little success.
online, or more inspiring specialists such as White Stuff,
Zara, Topshop, and Hobbs. While M&S has retained its


July 12, 2012

News Review
week by positioning the card as an alternative to the loyalty cards offered
Clothing & Accessories
by some of its rivals by providing customers with a tangible financial reward
By Kate Ormrod
for shopping at Asda, as opposed to offering loyalty points. Grocers are
particularly well-placed to capitalize on the currently very weak consumer
Tesco makes further changes to its clothing operations sentiment surrounding the banking industry, as their brands have survived
Having only been placed in the position in September 2011, Tesco’s head of the ongoing economic uncertainty relatively unscathed, and are largely
clothing Jill Easterbrook has been promoted to a newly created role in seen as more trustworthy and more stable than banks. This is highlighted by
which she will be responsible for Tesco Mobile, Tesco’s Irish operations, the Marks & Spencer’s recently announced banking ambitions – having
grocer’s One Stop chain of convenience stores, and its Nutri Centre revealed plans to open 50 branches over the next two years – and should
business. Meanwhile, Jason Tarry, the head of Tesco’s F&F brand in Central Asda successfully market its card to its substantial customer base, there is
Europe, will replace Ms Easterbrook. According to the company, Mr Tarry every possibility that it can match M&S’s goal in this area.
has helped the F&F brand to flourish in Central Europe, where it has grown to
become one of the leading clothing brands, and it is hoped that he can
Morrisons looking to expand its convenience offering through
replicate this success across the UK and Ireland. The handover of these
responsibilities from being under the remit of company CEO Philip Clarke to Costcutter deal
separate operations managers will allow the company to dedicate more Morrisons is said to be considering a deal with the Bibby Line Group, the
resources and time to its peripheral business. This will allow Mr Clarke to focus owner of the Costcutter convenience store chain, in order for the grocer to
solely on Tesco’s UK operations, which have faltered somewhat over the further its expansion into the convenience store market. Talks are said to
course of the last year – in January, the company posted its first profit have been taking place since the end of 2011, with suggested options
warning in 20 years following a poor performance over the Christmas period including the acquisition of Costcutter’s 157 company-owned stores by
after many customers were put off by the company’s overt discounting Morrisons, or for the grocer to strike supply deals with franchisees. Morrisons
stance during its Big Price Drop campaign. launched its M Local convenience format in June 2011, and to date has
opened five stores in the UK, in Doncaster, Ilkley, Manchester, Wilmslow, and
Birmingham. The company has stated its intention to open 70 stores by 2014;
Food & Grocery therefore it needs to expand at a much quicker rate than it is currently. The
By Cliona Lynch quickest way for it to achieve this would be through M&A, and striking a
deal with Costcutter, with its considerable reach and expertise in the
Asda launches Asda Money credit card convenience sector, would certainly help the grocer to accelerate its
As part of an overhaul of its financial services offering, Asda has launched its expansion. However, Morrisons may not be able to adapt to a large-scale
first credit card, offering holders unlimited cashback of 1% on purchases small store setup efficiently as the large number of stores will require a lot of
made at Asda stores and 0.5% on purchases made elsewhere. The time and money to merge, draining resources from its core operations.
company is hoping to target the 18 million customers that visit its stores each


July 12, 2012

News Review
Electricals & Entertainment An extra life for the pre-owned games market?
By Matthew Rubin The Court of Justice of the European Union ruled on July 3, 2012 that "an
author of software cannot oppose the resale of his 'used' licenses, allowing
the use of his programs downloaded from the Internet." While this lawsuit
Big plans for Maplin was brought to the courts by Oracle with regard to its own software, it could
Maplin chief executive John Cleland has announced a business growth and have huge ramifications for the gaming industry. With the first of the next-
rejuvenation plan at a cost of £40m ($62m). The investment will span three generation video games consoles expected to be released at the end of
and a half years, with funds flowing into store refurbishment, developing its 2012, Nintendo, Sony, and Microsoft will have to consider the impact of
e-commerce offering, and plans to grow the store portfolio by 50%. Maplin migrating users to direct downloads of game content. A recent
will be looking to take advantage of an electricals market that is expected announcement by Electronic Arts (EA) labels boss Frank Gibeau stating that
to return to growth by the end of 2013. By investing in a multi-channel the publisher's goal is to go 100% digital in its content delivery points to the
approach, Maplin stands to make strong gains; however, increasing the current intentions of the console industry. If the ruling is challenged and full
store numbers by 50% carries a lot of risk. If the economy as a whole does support becomes law, it could delay the transition towards entirely digital
not pick up as expected, a vastly larger number of stores could drag the downloads until a suitable method of controlling licenses can be found. This
retailer down under the burden of high costs in a low-demand market. would extend the life of physical video games, which would be a lifeline for
the already suffering Game Group. Game developer lawyers will be
Apple struggling to grow in China desperately looking to find ways to work around the ruling; one such option
US electricals giant Apple has not been able to meet its own retail may be to move to a “freemium” model whereby the basic game files are
expansion plans for China in 2012, with the country proving more distributed for free, but revenue is earned through access to levels or online
complicated than expected. In 2010, Apple set an objective of running 25 usage.
branded stores in China by 2012, when in fact it operates two in Beijing,
three in Shanghai, and just one in Hong Kong. There are, however,
thousands of licensed sellers of Apple products in the country, but it is feared
Home & DIY
unlicensed sellers have been able to flourish amid a lack of store presence, By Matthew Walton
jeopardizing the brand’s image. Apple has already paid $60m in July 2012 to
a Chinese firm to settle a dispute over iPad naming rights, which, although Gleaming result for BrightHouse
small in the context of the potential demand, showcases the difficulties that BrightHouse has reported surging revenues, up 17.1% to £266.5m ($412.7m) in
lie ahead. the year to March 31, 2012. Operating profits increased at a slower rate,
from £33.6m ($52.0m) in 2010–11 to £34.8m ($53.9m) in 2011–12. The rent-to-
own retailer currently operates 253 stores across the UK and plans to open a
further 35 in the current financial year, up from 25 in the previous year.


July 12, 2012

News Review
The weekly, fortnightly, and monthly payment programs have found strong
market appeal in an economy suffering from weak consumer confidence;
however, there will be a risk of falling demand when the economy improves.
Many big ticket shoppers have found products within their budget due to
no upfront costs, despite the overall payments usually adding up to more
than they would with a regular retailer. While disposable income continues Stay in touch
to be squeezed the retailer will find strong demand; however, BrightHouse
must be cautious of negative press surrounding its payment structure, as it
can promote unaffordable purchasing. Contact us to see how we can help
Tel: +44 (0)20 7551 9664
Email: enquiries@verdict.co.uk
Dragon takes control of Robert Dyas
Dragons’ Den star Theo Paphitis has taken over hardware chain Robert Dyas Share your views with our analysts and the Verdict community through our
for a reported £10m ($15.5m). Paphitis, who currently owns retailers as varied social media channels.
as Ryman and Boux Avenue, has a reputation for taking underperforming LinkedIn
retailers and turning their fortunes around. Robert Dyas was previously Twitter
thought to have a price tag of around £15m ($23.2m), with Wilkinson initially
signaling interest; however, the value retailer subsequently withdrew from Sign up to our emails for news from the UK and across the globe.
the bidding process. Lloyds, which held some of the debt and was the Verdict FreeView
biggest shareholder, put the retailer up for sale this year, despite it posting
an underlying profit of £3m ($4.6m) in 2011. By managing to remain
profitable, the hardware chain looks to have a bright future; however, the
new buyer needs to ensure store investment is maintained to remain
competitive.


Retail FreeView - M&S regroups after dismal clothing sales and the exit of director Kate Bostock

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Retail FreeView - M&S regroups after dismal clothing sales and the exit of director Kate Bostock