M&S’ clothing turnaround won’t be complete without bricks and mortar

This week's reports show a return to decline for M&S sales. After a promising Christmas period, the retailer’s clothing business was hit particularly hard, slowing back down in Q2. Some point to a later Easter and the ever-rising tide of e-commerce as the biggest contributing factors in play.

It’s been a long, tough ride for M&S clothing but chief executive Steve Rowe also has much to be pleased about. For starters, the M&S brand remains first among women according to YouGov’s Brand Index (up 17 points from 2016, yet 6 points up on 2015), and is 10th overall in Britain.

That translated to a rise in clothing and homeware sales over Christmas (up 2.3% versus the expected 0.5%) – stronger even than its 0.6% rise in the increasingly competitive food sales market.

So M&S is undergoing a transformation to turn that brand value into sustainable profit, starting by selling more clothing at full price in order to maintain margins and avoid slipping into the domain of discounters.

While I applaud that decision, the retailer’s strategy to devote less store space to clothing strikes me as a missed opportunity. The trend towards online shopping is clear, but growing digital channels is only half of the story.

More intriguing for M&S, and the wider retail world, should be understanding how all that valuable physical space is put to its best use. The answer isn’t by selling off part of your estate.

Celebrating the browsers

First of all: e-commerce and physical retail aren’t mutually exclusive. Each has its place for the shopper, and by extension for the retailer. Understanding where your store or website fits a customer’s mindset is the key to unlocking the value of each channel.

Consider how we buy things: it begins with an idea, or a question. Maybe I want to get fitter, or I want more space in my flat, or I want to be a better cook.

This is a phase that we call the ‘dreaming’ mindset. It’s exploratory and open-minded, and it’s perfect for physical retail. In our work with Hamleys, we learnt that 70% of store visits fulfilled this dreaming mode. Visitors didn’t have a toy in mind; they simply browsed around, looking for inspiration and a fun experience in the process. This is true beyond the toy industry – we found similar trends in sectors such as luxury, homeware and sports apparel.

We might be tempted to reject these customers as time wasters, but this couldn’t be further from the reality.

Physical retailers can create in-store experiences which play to our natural taste for dreaming and experiencing mindsets, to create higher dwell times. As MIT’s Path Intelligence survey found. for every 1% increase in dwell, spend increases by 1.3%.

Retailers that can cultivate the right store experience for those dwellers could, therefore, gain some serious ground.

What’s good for the goose isn’t necessarily good for the gander

That’s not to say that online is obsolete. As shoppers, we learn more about our initial question or thought and we focus into specific categories or products, then we move into price comparison before purchase. These are the most appropriate moments for online channels.

It follows, therefore, that in-store and online experiences for the same brand should not aim to deliver the same experience. Retailers must treat them differently.

I would argue that this is the point that so many stores, including M&S, need to address. Physical retail is an opportunity for consumers to get insider access and depth, online is where consumers can discover categories and pinpoint brands.

Physical retail has a future – just ask Amazon

This is the final response to physical retail naysayers: 80% of retail sales are set to take place offline, not online, in 2019. Giants of online retailing are duly concerned by their lack of physical presence, hence Amazon, eBay and Alibaba tapping this domain with their very own bricks and mortar.

It boils down to the unique connection brands can establish with consumers in-store, as our recent ‘Peaks of shopping’ report highlights. In store, brands can generate fun and exciting experiences that mitigate any drawbacks of cost, time and effort.

To do this well, brands can borrow from hospitality’s sociable aspects – like Ikea’s ’Dining Club’, Nike’s runners clubs or Lululemon’s complementary yoga classes – to create stores which are destinations in their own right, and the brands behind them as institutions rather than merchants.

If there is a ‘trick’ to this, it’s bringing customers the convenience of digital experiences along with the value that the physical retail world has to offer.

For M&S, its strong brand and customer insights gives the retailer a clearer sense than most of its rivals as to how it can connect online and in-store experiences in a cohesive and convincing way.

Dominique Bonnafoux is a senior strategist at Fitch

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Dominique Bonnafoux

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