The Hindu Business Line : Up to the Marks

Mark Ashman, the new CEO of Marks & Spencer Reliance India, carries the same name as the company he has been serving for the past 20 years. A true M&S loyalist, Mark has held several stints with the retailer both within and outside the UK. His India stint is now going to be one of his most challenging assignments and having a local connect is going to be vital. After being appointed as CEO for the newly formed joint venture with Reliance Retail, he has the responsibility of building the brand after detaching it from the franchise model of the past.

To begin with, Mark has decided to bring the pricing of M&S apparel on par with the UK market. Considering its erstwhile franchise partner, Planet Retail, had pegged it at a 25 per cent premium and later scaled it down to a 15 per cent premium of the price in the UK market, getting the pricing right and positioning it as a mid-priced brand will be top priority for the joint venture company. Partnering with Reliance Retail (RRL) will bring in more back-end synergies and advantages to reduce costs.

As Mark Ashman says, “Our first priority is to get on par with the UK market and offer the same price here. Going forward we will try to lower prices even further in this market.” Going by the laws of single brand retail in the country, M&S will put its might behind building its brand while Reliance Retail would be its back-end partner providing support for its warehousing, IT and other property-related issues it might face as it expands its business in the country. Ashman further elaborates, “Reliance Retail is the ideal partner for us to help us accelerate our growth as we expand in India. It will bring strength and local knowledge in the key areas of property, logistics and supply chain. RRL operates with considerable focus and pace. There are synergies with our partner in terms of back-end, IT, technology as well. The joint venture will not have any co-branded product offerings.”

Indian retailers also feel that M&S is better off forming a joint venture than existing as a franchise operation. “Being a franchise, there was a problem in terms of the pricing and positioning of the M&S brand. It is a middle-of-the-road brand while in the Indian market its pricing was almost double that of the UK market all this time. As long as the new joint venture company can resolve the positioning and pricing for the brand, there should not be a problem,” says Govind Shrikhande, Chief Executive Officer, Shoppers Stop.

Besides, being a franchise operation has its own limitations as building the brand may not be top priority. “A franchise partner has a short-term perspective in mind and would normally have limited resources to build the brand. A joint venture might work provided both the partners share the same vision both in the short and long term,” adds Jaydeep Shetty, CEO, Etam Future Fashions India (a Future group joint venture).

The 51:49 venture between the UK-based Marks & Spencer and Reliance with an initial investment of £29 million (Rs 230 crore) has decided to open 50 new stores in the next five years in India. While apparel will be its mainstay, it will continue with the existing categories such as toiletries and add homeware as a new category. However, its footwear category is likely to be discontinued. But foods would likely be a new category in the future (for which the company would need yet another approval from the Foreign Investment Promotion Board). In the UK market, its food outlets are at times separate stores under Simply Food; in India there is no such likelihood and the category is likely to be clubbed together at its stores. There is also the possibility of bringing in its branded cafes, which are part of its stores in the UK.

“If we choose to do foods in India, these are likely to be items with a long shelf life and we would be bringing in a range of biscuits, savouries and beverages,” says Ashman. Food and apparel contribute almost equal revenues for M&S in the UK.

Considering Marks & Spencer wants to reduce its prices and be perceived as a mid-market retail brand as it is in the UK, building scale into its sourcing operations will hold the key to its pricing strategy. Considering apparel commands steep duties of nearly 38 per cent, the UK-based retailer has decided to bring down its sourcing from abroad and source up to 70 per cent of its apparel indigenously. To expedite this process, the retailer has already set up its new sourcing office in Bangalore which would make apparel specifically for sale in India. Going forward, 70 per cent of its merchandise will be sourced in India. “Apart from our existing two operations in Bangalore, we have set up a new sourcing office in the same city to make apparel which will be specifically sold in India. In the next five years, we expect to lower the prices as 70 per cent of our volumes will be sourced and sold in India,” says Ashman. Bangalore has already been the sourcing hub for the retailer over the years and a new a new unit has been set up to make India-specific styles and sizes where there would be unique products catering to the local market.

The size of its stores will also undergo a change with larger formats (between 15-20,000 sq ft) to display its full range of goods. “The new M&S stores will be three times the size of the current stores, which, on an average, would be 15,000 sq ft, the first of which we hope to open later this year, in time for the festival season. Larger stores would enable us to offer a broader range of adult clothing, children’s wear and home wear. Sourcing more of our products locally while maintaining quality and sourcing standards will allow us to lower prices,” claims Ashman.

Changing the perception of its retail brand is also going to be imperative as it expands into the Indian market. “Our franchise partner has succeeded to an extent in generating awareness about M&S and we are thankful to Planet Retail. However, our customers’ feedback made us realise that our franchise stores were too small and prices too high. This has positioned M&S in India as an upmarket brand when we should be more of a mid-market brand. We, therefore, decided to take direct control of our businesses in India,” explains Ashman.

With an employee strength of 40 at its Delhi office already, M&S would be relying on local talent to grow the business.

Adds Ashman, “We have a strong ambition to become an employer of choice in India through our long-established business practices and employment principles. We already have some excellent people on board. We are scouting for a local person to head marketing. The joint venture has already appointed Jatin Luthra as its chief financial officer. Expats from M&S, Adam Colton and Spencer Sheen, will head the buying and retail portfolios respectively.”

The retailer’s commitment to the Indian market is now more evident. Observes Harminder P. Sahni, Managing Director, Technopak, “By forming a joint venture, M&S has shown its confidence in the Indian market. The fact that it has invested serious money goes to show that it wants to create value in this market. In any case, for a company of its size, it is not a good idea to exist as a franchise and it has taken the right step for itself in the long term.”

Currently M&S employs 75,000 people and has over 600 stores in the UK and over 275 stores in 39 territories around the world. The M&S Group revenues stood at £9 billion in 2008-09 with its international business up by 16.8 per cent during its first quarter. In India M&S is not expecting to make money in its initial years and the real estate situation is not expected to be a deterrent. As Ashman remarks, “We do not see a real estate crash. Rentals will see sensible correction as new malls will come up, thereby striking an equation between supply and demand. Good locations with good parking and well managed by the developer will command higher rentals. We are in talks with large developers and are in the process of identifying sites.” Neither is the retailer affected by the sudden slowdown in the economy. “We are comfortable with our plans and the slowdown has not affected us. M&S intends being a major player here both in the short and long term,” says Ashman.

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