Marks and Spencer – How can they achieve store estate optimisation in a rapidly changing world?

The question that is most often asked or answered in the market is ‘how many stores should you have?’

In my view there is no exact number that is applicable to all but a number that is derived for each retailer based on their customer profiles, their sales channels, footfall conversions and the strength of their brand. Some may have the necessity to follow certain retailers and feed off their footfall, or conversely you might be a destination store in your own right. Recently at LDC’s 14th Retail Summit in London, the property director of Pizza Hut talked about this from his experience. For Pizza Hut the feeling was that 300 was a good number for a profitable operation for them. With over 100,000 stores opening and closing across the country, figuring out optimum store numbers is a challenge, especially when you then identify where the stores should be located for the next 10-15 years.

Another question to ask is ‘is the purpose of the store retail or marketing?’ This is often something linked to large urban centres (flagship stores) and a very good example of which is Nike Town on Oxford Street which I am told is considered as a marketing cost and not a retail/property cost internally. Store profitability is key and hence why the purpose and thus expectations of a store have to be clear. Rents, business rates and lease lengths are all key factors but ones that are not always widely known at a store and thus portfolio level. The impact of such costs vary significantly for each retailer where some might have no online sales and others, such as John Lewis, might be creeping towards 50% of sales being derived online.

Marks and Spencer is an interesting retailer for a number of reasons. Firstly, it has evolved its offer from fashion and clothing to food and homewares.

Some might argue that this in itself presents a challenge when it comes to priorities and store formats and layouts. The skill sets are also very different as I am sure staff at John Lewis and Waitrose will testify. Secondly, in light of its history and heritage as a bricks and mortar retailer it will have a legacy element to its portfolio with long leases and upward only rents in towns where the opportunity for M&S products has declined or moved out of town. Thirdly, it has changed its property portfolio over time but was very much a late entrant to the out of town market unlike its rival Next who has been closing high street stores for some time.

M&S has 300 ‘department stores’ which is not a large number when you compare it to Next (421), New Look (554), H&M (229) and The Edinburgh Woollen Mill (285). Primark on the other hand has just 162 stores, many much larger than M&S stores. Detailed comparison between M&S and Next makes interesting reading as M&S has 123 high street shops (excluding shopping centres) and 54 on retail parks, whereas Next is the complete opposite. It has 54 high street shops and 203 retail park units. This is interesting in light of how they compete but the fact that one was borne out of being a high street retailer and the other out of a directory.

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Detailed analysis of M&S stores shows one possible area for rationalisation which has resulted from the recent changes to retail parks. M&S’s retail park presence has increased by 8% whilst all other formats have seen closures. There are 35 towns and cities that have more than two M&S stores either on the high street, in a shopping centre or on the edge of town in a retail park. If one removes the large urban centres such as London (27 stores), Glasgow (6) and other cities there are 22 towns where one might question the need for two stores. Are they cannibalising their own stores? Examples include Milton Keynes (3), Bournemouth (2), Durham (2), Fareham (2), Stockton on Tees (2), Swindon (2) and Chichester (2).

The high streets that M&S remains on, as the anchor in many cases, have seen significant change.

This is seen by the fact that since 2011 the vacancy rate around M&S high street stores has been above average for high streets and this gap has widened in recent years with the M&S average vacancy (200m radius) now being 12.7% whilst the national average is 11.4%.

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Another challenge M&S faces is the diversity in health of the locations it is in.

LDC’s health index is a key performance indicator for a retailer such as M&S as it looks at 12 data points from catchment, spend, vacancy, occupiers present, food and beverage and entertainment – destination centres score highly. M&S has a broad church in this respect with nearly 17% of stores in weak areas and 19% in strong areas and the rest middling. The good news, however, is that analysis over 12 months shows that 20% of M&S locations are seeing the health of their centres improve whilst 16% are declining.

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Finally, the other challenge that M&S faces, as does any other retailer, is competition. If one takes Next, New Look, H&M and Primark as examples of retailers who might be taking spend away from M&S then a third (32%) of M&S stores have four or more of these competitors within 500m of one of their stores. Now if you are in the ascendancy that might be considered a good thing but perhaps this is where M&S sits currently.

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What we do know is that stores are an important part of multichannel retailing and that the presence of stores helps drive online sales.

So M&S needs to think carefully as to which stores to close with what impact on existing business tempered by the opportunities presented by new locations. 300 stores is not too many in my view but rationalisation where I see store cannibalisation and relocating to the new retail destinations is key along with of course a multi-channel offer of products or services that is appealing to its customers. Relevance by location and demographic will be key to M&S success.

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