Having tracked Marks & Spencer's (M&S) recent sales decline with interest I found Marc Bolland's (M&S Chief Executive) reaction to his organisation's under performance perplexing.
In this article I will examine his response, the underlying issues behind M&S's recent results and propose where I believe Marc should be focused instead.
Where has it all gone wrong?
M&S's non-food sales were down 2.8% on a same-store basis for the first quarter of 2012, with problems of supply and stock shortages a sited as the cause of this drop in sales.
Discussing these results Marc Bolland stated that the brand was on-trend with its choice of items and it was only a lack of stock that had let it down (as reported in the Metro, April 2012).
Despite this, as has been widely reported, Kate Bostock, head of women's wear, is to stand down. In addition Debenhams chief, Belinda Earl, is being 'parachuted' in to the freshly created role of style director in order to 'revitalise the women's wear range'.
Sorry Marc, I thought you said you had an issue with supply?
Having defined the problem as a supply chain issue. A lack of supply.
Marc Bolland's solution is to revitalise the range. Increase demand.
It is like building more cars to deal with an oil crisis.
Management hokus pokus
Marc Bollands real problem is he believes he can predict the future. 'We were a bit underbought in some areas. That was a miss in our merchandising planning.' Mr Bolland said.
In other words 'my merchandising department should be better at predicting the future but don't worry because I'm going to parachute someone in who has a better crystal ball'.
Surely with her magical powers to predict the future Belinda Earl won't need a parachute as she'll have her own broom stick to fly in on?
As Marc Bolland's superb understatement of being 'a bit underbought' suggests, all M&S need to do in future is buy more stock.
The assumes cash is unlimited and the requisite sales at the end of each season to dispose of all the items that didn't sell is not a problem, then this is a great solution - in fact it is what clothing retailers have been doing for years and unfortunately for Marc it is indeed a big problem.
Hey, sales are only 2.8% down - what's all the fuss about?
By their own estimates M&S could have sold an additional 200,000 pieces of knitwear alone in the past quarter.
These items range from £19.50 - £79.00 on their website - let's be conservative and assume an average selling price of £25 a garment.
At the typical 60% high street margin clothing retailers insist on this is an additional £3,000,000 profit missed from knitwear alone. The size of the prize across the whole range for M&S and its shareholders is enormous.
So Marc Bolland faces a dilemma. On the one hand he needs to hold more stock to capture these missed sales. While on the other hand he must mitigate the issues of holding excess stock throughout the season, not least the additional cash ted up; thus he should hold less stock.
Tempted by exotic destinations
It is M&S's obsession with cutting costs (rather than making money) that leads them to faraway lands in pursuit of ever cheaper wage rates (even though wages actually make up less than 10% of the cost of the garment).
As a result, many big brand high street retailers have supply lead times of up to 6 months, so the product is often out of style before they can react to higher than expected demand.
Can we save Marc Bolland?
Like me, you have no doubt grown fond of our flawed hero Marc Boland and want to see him succeed in the end. In the interests of fairness, most of M&S's current supply chain policies were not instigated under Marc's stewardship.
Never the less, what is Marc to do?
The short answer is he has to let go of the mantra of all retail multiples over the past 10-15 years of cheapest is always best.
Instead he must focus on building a responsive supply chain. One that is effective, rather than efficient (supposedly).
The key steps are:
1. Moving at least some production capability closer to home to shrink the resupply time and only forecast one supply lead-time ahead
2. Hold stock at a high level of aggregation (as centrally as possible with a significant chunk held as raw materials)
3. Manage according to replenishment (once you sell one, order another one so the supply chain is always primed)
In essence; why try to be better a predicting the future if you don't have to?
Then, Marc, instead of cutting costs you can focus on the business of making money, which is the reason your business exists at all.
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