Marks and Spencer speeds up digital transformation plans as profits plunge

Marks and Spencer (M&S) is planning to accelerate its digital transformation plans after its annual financial results showed a 62% drop in pre-tax profits.

The supermarket chain said it hoped to “modernise” its business through “accelerated change” to cater better for customers who are increasingly shopping online.

The company’s report for the 2017/18 financial year showed a 62% plunge in annual pre-tax profits, with like-for-like profits falling across the brand’s food, clothing and home ranges in the UK.

Marks and Spencer CEO Steve Rowe said he had highlighted the need for changes during the firm’s half-year results in November 2017, and that the first steps in these transformation plans were a factor in the poor financial performance.

“The first phase of our transformation plan, restoring the basics, is now well under way and the actions taken have increased the velocity of change running through our business,” he said. “These changes come with short-term costs, which are reflected in today’s results.”

Widespread adoption of technology means consumers are more omni-channel in nature and M&S said other patterns in the retail space, such as retailers moving clothing and home goods online, the growing demand for home delivery and other stores offering discount goods, have been “threats” to its business.

The retailer’s plan to address its problems includes closing down 100 of its physical stores by 2022, the schedule for which has been fast-tracked.

Many high-street retailers are suffering a drop in footfall, with some claiming that in the future, physical stores will become more a platform for customer experiences than for purchases.

According to Rowe, M&S is seeking to become a “more digital business” and has set out plans to improve its website and eliminate legacy IT systems through a technology partnership with digital consulting firm TCS, in the hope of becoming more efficient.

The brand has admitted struggling to cope with demand in some locations, and said it hoped to upgrade the supply chain across its clothing, home and goods ranges.

Although M&S’s online sales are increasing, its annual report said its online presence lagged behind that of some of its more advanced competitors, and that its website experience was too slow.

The company’s new website was launched in 2014, and was followed by a reported boost in online sales.

Marks and Spencer said it is working to improve its website and is investing in its e-commerce offering with the aim of doubling the online share of its clothing and home sales.

Eventually, the retailer hopes to reduce its costs by £350m, but to achieve this, Rowe said a number of changes are needed alongside those that have already begun.

“There are a number of structural issues to address and we are taking steps towards fixing these,” he said. “The new organisation will largely be in place by July and the team is now tackling transforming our culture to make M&S a faster, lower-cost, more commercial, more digital business.

“This is vital as we start to leverage the strength of the M&S brand and values across a family of businesses to deliver sustainable, profitable growth in three to five years.”

To ensure these changes are adopted company-wide, the retailer plans to move its internal culture away from a “top-heavy” and “corporate” brand.

Marks and Spencer has been aware of the need for digital transformation for many years, and spoke earlier this year about the costs it hopes to save by becoming a digital-first business.