Welcome to the real world, M&S
GOOD news. Marks & Spencer is set to close some stores. Yes, you heard me right. Britain’s favourite retailer is this week expected to shut a slew of shops, many overseas – including its flagship Paris outlet – but also a couple of dozen in the UK.
This is good news because it is a tentative sign that the group is grappling with the real strategic challenges that it – and the whole retail sector – are facing.
For years the strategy of shop groups was simple: open more stores because that will increase sales and so profits will rise.
It made being a retail boss remarkably straightforward. That simple formula ceased working quite a long time ago and many of our biggest groups have yet to realise, so signs that M&S is adapting are to be welcomed.
The retail landscape has changed. Online shopping is continuing to rise, but much of its growth is not new sales, it is people choosing to buy online rather than visit a store. Shops, however, cost money: they have to pay rates and rents and, if owned outright, they tie up capital that might be better invested elsewhere. If they are not adding sales they are a liability.
Our largest store groups have not been nimble enough to face these issues, partly because it requires abandoning decades of received wisdom: more stores equals more sales equals higher profits.
Not for a second do I believe that trips to shops are going to become a thing of the past. But in this new age, the stores worth keeping open must unequivocally earn their keep and they must boost the brand. M&S has plenty of high quality stores. It also has some that are dowdy and poorly located and therefore deliver neither. Hoping that they can be saved is delusional. Shopping has changed forever and retailers need to be far more radical in their response. THE pound has been slumping in recent months, but it may have a rival in the race downward – the US dollar. The looming election threatens what once seemed impossible: a Trump Presidency.
Precisely what the Donald has planned for the US economy is far from clear. He speaks of entrepreneurial spirit, but is clearly minded to make the US more insular and protectionist. He has pledged tax cuts which some economists have predicted will blow a hole in US public finances.
Financial markets have given their verdict, as gold (the classic safe haven in a crisis) has risen.
Ironically, a Trump victory might mean the pound becomes stronger against the dollar. But if we see a sterling recovery against the greenback, we should be careful not to see it as rising confidence in the UK. It just means Trump is worse than Brexit.