Forging a reshaped M&S - MARKS AND SPENCER 7 OCTOBER 2021 - Marks & Spencer
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Forging a reshaped M&S MARKS AND SPENCER 7 OCTOBER 2021
FORGING A RESHAPED M&S
Steve Rowe
CHIEF EXECUTIVE OFFICER
FORGING A RESHAPED M&S
OUR TRANSFORMATION JOURNEY
STEP THREE
MAKING
STEP TWO M&S SPECIAL
STEP ONE
SHAPING
THE FUTURE
FIXING
THE BASICS
FORGING A RESHAPED M&S
FIXING THE BASICS: THE TRANSFORMATION SO FAR
1 Simplified structure
and greater
accountability
2 Substantial increase
in digital and data
capability
3 Shifted to trusted
value and more
contemporary
styling in C&H
4 Outperforming in
Food and entering
growth markets
5 Simplified operations
and increased capacity 6 Created capability to
accelerate rotation
FORGING A RESHAPED M&S
THE MARKET OUTLOOK REMAINS UNCERTAIN
CONFIDENCE RECOVERING SUPPLY CHAIN COST AND DISRUPTION
UK consumer confidence was back to pre-pandemic levels in August
0
-10
-20
-30
-40
Sep-19 Mar-20 Sep-20 Mar-21 Sep-21
POSITIVE CHRISTMAS SPEND INTENTIONS THIS YEAR BREXIT
Net positive or negative spend intentions for Christmas vs the prior
year; survey of 1000 M&S customers
10%
5%
0%
-5%
-10%
-15%
7 Nov 14 Nov 21 Nov 28 Nov 28 Nov 5 Dec 17 Sept
20/21 21/22
FORGING A RESHAPED M&S
A CLEAR PLAN TO SHAPE THE FUTURE
Food and omni-channel stores
Clothing & Home and MS2
Group financial and strategic
priorities
M&S Sears Solihull
FORGING A RESHAPED M&S
Rapid carbon reduction
NET ZERO NET ZERO ACROSS
2030 ACROSS OUR OWN
OPERATIONS BY 2035
2035 ENTIRE VALUE SUPPLY
CHAIN BY 2040
2040
Reduced waste Change driven in partnership
and emissions with suppliers, partners
and customers
Zero emissions property Suppliers and business partners
on net zero journey
Zero emissions transport Zero deforestation
PLAN A – OUR
JOURNEY TO
Reduce and recycle packaging Low carbon farming
NET ZERO
Reduce food waste Circular economy
Plant based protein Sustainable sourcing
2025
target
2030
target
2035
target
2040
target
Our baseline
34% reduction 55% reduction Net Zero Net Zero
5.7m tonnes in carbon emissions versus our baseline in carbon emissions versus our baseline across our own business across Entire Value
of carbon emitted in 2016/17 Supply Chain
FORGING A RESHAPED M&S THIS MORNING’S AGENDA Welcome Steve Rowe Food and omni-channel stores Stuart Machin Food – creating the magic George Wright and Sharry Cramond Property renewal and rotation Sacha Berendji Food supply chain George Wright Clothing & Home and MS2 Katie Bickerstaffe Clothing & Home – a brilliant product engine Richard Price Clothing & Home – MS2 Jeremy Pee, Stephen Langford and Paul Friston Strategic priorities and financial principles Eoin Tonge
FORGING A RESHAPED M&S
Stuart Machin
COO – FOOD, OPERATIONS, PROPERTY, STORE
DEVELOPMENT, ISLAND OF IRELAND, TECHNOLOGY AND HR
FORGING A RESHAPED M&S
FIVE AREAS OF RESPONSIBILITY
Store and Central Operations Technology People
Island of Ireland Property and Store Development FoodFORGING A RESHAPED M&S OUR STRATEGY STOREFRONT
FORGING A RESHAPED M&S
CUSTOMER SHOPPING BEHAVIOUR HAS CHANGED
M&S sales vs.19/20 15% of baskets Family shoppers Hospitality transactions
still down
+9.6% £30+ 13% -35%FORGING A RESHAPED M&S STRONG HEADWINDS Costs of Brexit for Industry Number of UK driver CO2 island of Ireland vacancy rate shortages in industry prices up £27-33m 13% 100,000 ~5x
FORGING A RESHAPED M&S
PROTECT THE MAGIC
Obsession with
product and
own labelFORGING A RESHAPED M&S
PROTECT THE MAGIC
Focused,
targeted rangeFORGING A RESHAPED M&S PROTECT THE MAGIC Careful category management
FORGING A RESHAPED M&S PROTECT THE MAGIC Trusted value
FORGING A RESHAPED M&S PROTECT THE MAGIC A loved and trusted brand
FORGING A RESHAPED M&S
PROTECT THE MAGIC
Obsession with product and
own label
Focused, targeted range
Careful category management
Trusted value
A loved and trusted brand
19FORGING A RESHAPED M&S George Wright COMMERCIAL DIRECTOR, FOODS
FORGING A RESHAPED M&S
TWO YEARS AGO WE HIGHLIGHTED OUR OPPORTUNITY
M&S INVESTOR DAY 2019
Growth in Medium and Large
baskets
Growth with Families
Growth in core Fresh and
Ambient categories, particularly
outside our heartland areasFORGING A RESHAPED M&S
A CONSISTENT AND RIGOROUS APPROACH TO TIERING
TIER DESCRIPTION OUR RANGE
Affordable Luxury – highly premium
BEST products, only relevant in Gifting, BWS, Meat
& Fish, Deli, Cheese & Dairy
Differentiated vs. Good through improved recipe,
BETTER ingredients, process, packaging (usually one or
more)
Entry level offer for M&S
GOOD Simple ingredients and recipes
Basic packaging
Lowest spec ingredients
VALUE Cost focused recipes
M&S doesn’t play in these tiersFORGING A RESHAPED M&S
TRANSFORMING EACH CATEGORY – DRIED PASTA EXAMPLE
THEN NOW
• Single grain, durum wheat semolina
BEST 500g: £2.50 • Exclusive 4th generation family-owned
pasta manufacturer in Italian Alps
4 lines (+4)
• Organic and vegan recipe
• Exclusive premium durum wheat mix
BETTER 500g: £1.50 500g: £1.50 • More protein and tighter gluten index
18 lines 14 lines (-4) • First-to-market recyclable paper bag
1kg: £1.00
• Italian durum wheat (various grades)
GOOD 500g: 55p 3 lines (+3)
• Increased focus on health with
3 lines 500g: 65p additional wholewheat variants
4 lines (+1)FORGING A RESHAPED M&S
TRANSFORMING EACH CATEGORY – DRIED PASTA EXAMPLE
THEN NOW
• Single grain, durum wheat semolina
BEST 500g: £2.50 • Exclusive 4th generation family-owned
pasta manufacturer in Italian Alps
4 lines (+4)
• Organic and vegan recipe
• Exclusive premium durum wheat mix
BETTER 500g: £1.50 500g: £1.50 • More protein and tighter gluten index
18 lines 14 lines (-4) • First-to-market recyclable paper bag
1kg: £1.00
• Italian durum wheat (various grades)
GOOD 500g: 55p 3 lines (+3)
• Increased focus on health with
3 lines 500g: 65p additional wholewheat variants
4 lines (+1)FORGING A RESHAPED M&S
TRANSFORMING EACH CATEGORY – TIERING EXAMPLES
GOOD BETTER BEST
Meals for One Classic Wines Single-origin CoffeeFORGING A RESHAPED M&S
TRANSFORMING EACH CATEGORY – TIERING EXAMPLES
GOOD BETTER BEST
Meals for One Classic Wines Single-origin CoffeeFORGING A RESHAPED M&S
TRANSFORMING EACH CATEGORY – SEASONAL EVENTS
STRETCHING INTO AFFORDABLE
LUXURY FOR RELEVANT CATEGORIES …AND LEADING ON COLLECTION
3.1m
1.2m
0.1m
2019 2020 2021
UNITSFORGING A RESHAPED M&S
PRICE AND VALUE PERCEPTION
“WHICH OF THE FOLLOWING SUPERMARKETS DO
YOU THINK REPRESENTS GOOD / POOR VALUE?”
Net Score (% Good - % Poor). 52 week average
4
2
M&S value perception +8pts
vs. 2019
0
-2
Market value perception
-4
+3pts vs. 2019
-6
-8
05-19 08-19 12-19 03-20 06-20 10-20 01-21 05-21 08-21
Source: YouGov. Comparison is Aug 2021 to Aug 2019. Market is unweighted average of other retailers.FORGING A RESHAPED M&S
PROMOTIONS REMAIN LOW; GROWTH FROM FULL PRICE
M&S PROMO PARTICIPATION M&S WEEKLY SALES
Average monthly % sales £m sales (trend line)
In-store
promotion
30% 200
picture -
salmon
175
25%
150
20%
125
Full price
15% 100
75
10%
50
5%
25 Promo
0% 0
Jan-18 Jan-19 Jan-20 Jan-21 Sep-21 Apr-18 Apr-19 Apr-20 Apr-21
Sources: Internal reportingFORGING A RESHAPED M&S
THREE KEY LEVERS TO DRIVING VALUE PERCEPTION
REMARKSABLE VALUE FRESH MARKET SPECIALS DINE IN
Great everyday value on A consistent drumbeat of Our occasion-led solution
M&S quality products value and freshness for dinner tonightFORGING A RESHAPED M&S
GREAT EVERYDAY VALUE ON M&S QUALITY PRODUCTS
Bread Fibre and Vitamin D enriched
Milk From RSPCA assured farms
Beef 100% traceable to farm
Salmon Responsibly source from Scotland
Produce M&S Select Farms
Bacon Outdoor bred, RSPCA assured
Eggs 100% free range, RSPCA assured
Pasta Air-dried in the Italian Alps
Cleaning Vegan, cruelty freeFORGING A RESHAPED M&S
A CONSISTENT DRUMBEAT OF VALUE AND FRESHNESS
High-quality, seasonal product Great value price points Bold, abundant displays
FRUIT VEGETABLES MORE CORE AND
+1.4ppt Penetration +0.8ppt Penetration OCCASIONAL SHOPPERS
Sources: Internal reporting.FORGING A RESHAPED M&S
OUR OCCASION-LED SOLUTION FOR DINNER TONIGHT
From this... To this...
QUALITY AND
PROFITABILITY UP
DRIVING FOOTFALL
OVER 1/3 OF SALES
FROM FAMILIESFORGING A RESHAPED M&S
CATEGORY MANAGEMENT & TRUSTED VALUE DRIVING SHARE
FAMILIES, MEDIUM / LARGE BASKETS FRESH AND AMBIENT AREAS
Families 1.9% to 2.2% Bakery 7.0% to 8.1%
Small
Basket 9.0% to 9.2% Vegetables 5.6% to 6.3%
Medium
Basket 2.3% to 2.7% Meat 6.6% to 7.3%
Large
Basket 0.6% to 0.9% Dairy 3.0% to 3.7%
Total
Market 3.1% to 3.3% Groceries 1.5% to 1.9%
Share
Source: Kantar 12 week data Sept ‘21 vs Sept ’19 / IRi Market Tracker Sept ‘19 vs Aug ‘21FORGING A RESHAPED M&S
MODERNISE THE REST
Rotating our estate;
closing, replacing,
opening and renewing
our storesFORGING A RESHAPED M&S
MODERNISE THE REST
Embracing a
digital worldFORGING A RESHAPED M&S MODERNISE THE REST Modernising our supply chain
FORGING A RESHAPED M&S MODERNISE THE REST Lowering costs
FORGING A RESHAPED M&S MODERNISE THE REST One Remarkable Food Team
FORGING A RESHAPED M&S
MODERNISE THE REST
Rotating our estate; closing, replacing,
opening and renewing our stores
Embracing a digital world
Modernising our supply chain
Lowering costs
One Remarkable Food TeamFORGING A RESHAPED M&S
BOTH ELEMENTS ARE CRITICAL
PROTECTING
THE MAGIC & MODERNISING
THE RESTFORGING A RESHAPED M&S
WHERE WE WERE IN 2018
CUSTOMER EXPERIENCE
Confusing customer experience in stores
Room to improve store standards
PEOPLE Customer Over index in small store formats
Experience Only a dozen shops stock full range
Lack of accountability and empowerment
No real presence online
Short of skills & capabilities
Not as relevant for families and big shops
Morale low, change fatigue set in
Systems slowing productivity
People Product PRODUCT
LFL Sales Down
OPERATIONS Margin Down
Competitors attempting to copy our quality
Innovation around the fringes
Cost inflation Costs Up Operating in narrow missions & price bands
Costly supply chain built for simpler estate
Profit Down Proliferation in range
Increasing costs and waste levels
Not enough exclusive supplier relationships
Poor availability
VALUE
Poor price and value perception
Operations Value
Focus been on brand not product & value
Too many complex promotions
Poor good, better, best tieringFORGING A RESHAPED M&S
OUR TRANSFORMATION - TODAY
CUSTOMER EXPERIENCE
Engaging new store environment
Improving standards – but more to do
PEOPLE Customer Focus on bigger new stores
Experience Greater full range coverage
Empowered, high performing team
Online through Ocado and bigger M&S.com
Specialist skills
Growing the family basket
Engaged on our transformation
Investing behind new systems and
processes
High performing culture
People Product PRODUCT
Competitors still attempting to copy us
OPERATIONS
Innovation on centre of plate
Broadening missions and price bands
Still see cost inflation – but plan to mitigate Focused, curated range
Improved supply chain – much more to do Stronger supplier relationships
Costs under control; real focus on waste Leadership in quality perception
Sales growth ahead of new space growth
Better availability – much more to do
VALUE
Improved price and value perception
Operations Value
Returned the focus to product and value
Greatly scaled back promotions
Much better tiering – but more to doFORGING A RESHAPED M&S OUR STRATEGY STOREFRONT
FORGING A RESHAPED M&S
Katie Bickerstaffe
COO – CLOTHING & HOME,
INTERNATIONAL, DATA AND SERVICESFORGING A RESHAPED M&S WE HAVE A SUBSTANTIAL CUSTOMER OPPORTUNITY Known C&H Womenswear customer Number of single Online only purchase customers wallet share only business unit shoppers frequency just 12.9m 11% 50% 2.4x
FORGING A RESHAPED M&S
THE PAST YEAR HAS ACCELERATED CHANGE
STEP CHANGE IN ONLINE PENETRATION
Permanent step up
in online market % of total market sales
Substantial shift to 49%
casual dressing 78% 75% 73% 69%
Spending more on 51%
homes 22% 25% 27% 31%
2016/17 2017/18 2018/19 2019/20 2020/21
Multiple competitors Online Offline
have left the marketFORGING A RESHAPED M&S BUT COVID EXPOSED SOME WEAKNESSES Customers more Categories weighted Channels weighted Limited operational likely to isolate towards formal towards stores flexibility
FORGING A RESHAPED M&S
THERE ARE FOUR KEY PILLARS TO OUR STRATEGY
Building a brilliant Driving online and exploiting Deepening customer
product engine omni-channel advantage relationships
Sustainable futureFORGING A RESHAPED M&S
WE HAVE ALREADY MADE SOME PROGRESS ON PRODUCT
Option count for October down c.28% on 18/19
20,000
14,445
Focused shape of buy
18/19 21/22
Goodmove now a £70m brand
70
53
42
Pivoted to casual
19/20 20/21 21/22
Stock into sale down 36% since 18/19
Reduced promotion and 1000
markdown 500
0
18/19 19/20 20/21 21/22FORGING A RESHAPED M&S
RESULTING IN IMPROVING CUSTOMER PERCEPTIONS
Customer value perception has increased over the past 3 years to be #1 in the market
40
M&S
35
#2 in market
30
Average of 7
25 other competitors
20
Dec ‘17 Dec ‘18 Dec ‘19 Dec ‘20 Aug ‘21
% of positive responses from sample size of c.5000 to the question: Which of the following clothing stores and brands do you think represents GOOD VALUE FOR MONEY?
By that we don't mean "cheap," but that the brands offer a customer a lot in return for the price paid
Customer quality perception remains far ahead of the market
60
M&S
40
#2 in market
20 Average of 7
other competitors
0
Dec ‘17 Dec ‘18 Dec ‘19 Dec ‘20 Aug ‘21
% of positive responses from sample size of c.5000 to the question: Which of the following clothing stores and brands do you think represents GOOD QUALITY?FORGING A RESHAPED M&S WE’VE MADE IMPROVEMENTS TO OUR PROPOSITION Customer data engine Launched and Doubled peak capacity and Sparks relaunch grown 3P brands for online growth 12.9m Members £115 Basket Size 570k Singles
FORGING A RESHAPED M&S
SO WE ARE GOING FASTER TO RESHAPE CLOTHING & HOME
A brilliant C&H product engine
Leveraging Sparks customer
data
Driving growth online
Expanding International
presenceFORGING A RESHAPED M&S
Richard Price
MANAGING DIRECTOR, CLOTHING & HOMEFORGING A RESHAPED M&S BUILDING A BRILLIANT PRODUCT ENGINE The changing shape of the market What M&S is doing to win How we are going to win consistently
FORGING A RESHAPED M&S
SOME OF THE CHALLENGES ARE NOT NEW
CUSTOMER SPEND STATIC EVEN BEFORE COVID
£ annual spend, constant 2020 prices
Average spend flat and 787 778 777 758
wardrobes increasingly full
581
FY17 FY18 FY19 FY20 FY21
Shift to casual dressing
ONLINE SPENDING LESS FREQUENT
FY20 Average
Online Basket £36
11x per year
More online shopping but less
frequently FY20 Average
In-store Basket £24
23x per yearFORGING A RESHAPED M&S
EXISTING STRENGTHS AND WEAKNESSES AMPLIFIED
GROWTH DEPARTMENTS
FY21 YoY Growth (%)
Women's Activewear 29%
Kid's Nightwear 24%
Men's Activewear 17%
Women's Sleepwear 11%
Boy's Essentials 5%
Women's Sports Footwear 5%
Men's Nightwear 5%
DECLINING DEPARTMENTS
FY21 YoY Growth (%)
Men's Formal Footwear -63%
Women's Swimwear -61%
Women's Formal Dresses -59%
Men's Formal Footwear -58%
Women's Formal Trousers -53%
Women's Skirts -52%FORGING A RESHAPED M&S
SUBSTANTIAL OPPORTUNITIES FOR GROWTH
% OF MARKET SPEND BY ‘LOOK’ (£%)
Families spend more than
average
22% 22% 23%
36%
40%
Strong shift towards casual
40% 40% 41%
37%
35%
Clear opportunity in home 37% 37% 35%
23%
16%
FY17 FY18 FY19 FY20 FY21
Competitors leaving the Sporty Casual Smart Casual Smart
marketFORGING A RESHAPED M&S
CLEAR SALES POTENTIAL ACROSS CATEGORIES
WOMENSWEAR KIDSWEAR HOME
4m lingerie customers do not shop 6m shoppers buy kidswear elsewhere 22m M&S customers do not shopFORGING A RESHAPED M&S
CLEAR SALES POTENTIAL ACROSS CATEGORIES
WOMENSWEAR KIDSWEAR HOME
4m lingerie customers do not shop 6m shoppers buy kidswear elsewhere 22m M&S customers do not shopFORGING A RESHAPED M&S
WE ARE TARGETING THE LARGEST PART OF THE MARKET
Comfort First
Modern Fashion Forward
Mainstream
Customers who do not Customers most concerned
follow the latest fashion with staying up-to-date
trends and prioritise with latest trends
comfort over style Quality, style & value seekers who
make our products forFORGING A RESHAPED M&S
WHAT OUR CUSTOMERS TELL US
Highest purchase consideration Lacks inspiration
Highest rated for quality Too formal
Improvement in value for money Poor availabilityFORGING A RESHAPED M&S WE’VE MADE SOME PROGRESS MADE THE FOCUSED ON REIMAGINED AND IMPROVED FULL PRICE BIG BIGGER HERO PRODUCT RELAUNCHED CASUAL SELL THROUGH 44% in top 100 lines Schoolwear market Strong growth in activewear Less stock into sale vs. 32% 2 years ago share now over 24% and kids daywear and fewer promotions
FORGING A RESHAPED M&S
AND ARE NOW FOCUSED ON WINNING CONSISTENTLY
WORLD CLASS DESIGN FLEXIBLE OPTIMISED SHOWCASING
AND SELECTION SOURCING PLANNING PRODUCT
Never the Same Again Academy Reducing lead times Channel specific forecasts Store rotation
Test and repeat Introducing ‘speed lane’ Never out of stock Shop ‘The Edit’
programme on essentials
Option planner and pareto Expanded OTB Outfitting vs single products
Markdown optimisation Sustainable raw materialsFORGING A RESHAPED M&S SHOWCASING PRODUCT TO BEST EFFECT: THE EDIT
FORGING A RESHAPED M&S
WHAT DOES A WORLD CLASS PRODUCT ENGINE LOOK LIKE?
Strategic pre-season planning and increased
availability
More open to buy to back growth
A speed lane for popular lines aligned
with sourcing
Never out of stock on brilliant basics
Full-price sell through up to 90%FORGING A RESHAPED M&S
Katie Bickerstaffe
COO – CLOTHING & HOME,
INTERNATIONAL, DATA AND SERVICESFORGING A RESHAPED M&S
MS2: M&S.COM AT THE CENTRE OF WHAT WE DO
MS2
Digitally led
Commercial
Trading & Retail
operations
Operations
Customer
Supply chain & logistics first
M&S.com
Customer Experience Speed
Digital Product / Marketing
Technology
Finance
Data drivenFORGING A RESHAPED M&S THE OPPORTUNITY Food and Clothing customers Compared to those Number of cross-channel using Sparks, online, Bank and shopping only in store, dual customers shopping the app spend 10x as much channel customers spend 4 or more business units £1400 p.a. 2x as much 61%
FORGING A RESHAPED M&S
OUR MS2 PROGRAMME
BEST OFFER BRILLIANT SELLING FAMOUS SERVICE
Engage and excite our customers via Attract, retain and drive frequency Deliver trusted, easy, fast and friendly
our products, giving them reasons to through data driven curated experiences service solutions at unbeatable value
visit and shop more often that inspire, engage and reassureFORGING A RESHAPED M&S
MS2
Relevant, authoritative offer
Maximising availability
Compelling gifting
BEST OFFER
Engage and excite our customers via
our products, giving them reasons to
visit and shop more often
Broadening our reach
through brandsFORGING A RESHAPED M&S
MS2
Mobile-led omni-channel
experience
Make it easier to shop
BRILLIANT SELLING
Attract, retain and drive frequency Personalisation and lifetime value
through data driven curated experiences
that inspire, engage and reassureFORGING A RESHAPED M&S
MS2
Leading click and collect
Superb delivery
FAMOUS SERVICE
Deliver trusted, easy, fast and friendly Frictionless returns and support
service solutions at unbeatable valueFORGING A RESHAPED M&S
OUR STRATEGY
Building a brilliant Driving online and exploiting Deepening customer
product engine omni-channel advantage relationships
Sustainable futureFORGING A RESHAPED M&S
Eoin Tonge
CHIEF FINANCE OFFICER
M&S Hedge EndFORGING A RESHAPED M&S
STRATEGIC PRIORITIES
RIGHT NOW ENABLING GROWTH TODAY AND TOMORROW FUTURE M&S
Core focus of growth plans Efficiently investing in capacity and capability Long term change and innovation
PLAN A
Target scope 3 carbon net zero by 2040
OCADO RETAIL
FOOD AND C&H PROPOSITION FOOD AND C&H OPERATING MODELS Maximising the value of the Ocado JV
In Food, larger baskets and broader appeal Systems capability to maximise availability, reduce
Food waste, maximise C&H FP sell-through and
In C&H, driving cross category shopping &
increased style credentials
reduce markdown and promotion EXTENDING OUR ECOSYSTEM
Growing relevance through new products, services and solutions
MS2 BUILDING OUT SPARKS AND PERSONALISATION 3RD PARTY BRANDS
Aggressive ambition to double online sales Leveraging data & Sparks to keep customers on our platform Complementary brands and platform capabilities
GLOBAL OMNI CHANNEL STORE OF THE FUTURE AND STORE ROTATION
Measured roll-out of renewal stores, changing perceptions;
Double online and grow in core markets sustainable store base funded by asset management
RETAIL EFFECTIVENESS
Sustainable cost ratios in a world of channel shift
SUPPLY CHAIN – C&H & INT’L
Global omni-channel capabilities built to scale
SUPPLY CHAIN – FOOD
Modernised network with substantial efficienciesFORGING A RESHAPED M&S
OUR FINANCIAL PRINCIPLES
Unswerving focus on cash
Transparency of reporting
Return to sustainable profitable
growth
c
Robust balance sheet
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