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The UK high street is no place for the faint-hearted. The latest figures from the Office of National Statistics saw sales fall in April by 1.1% compared to April 2011.
For some of the country’s largest retailers, the figures were even worse. Retail of food items declined by 3.5% while sales in textiles, clothing and footwear stores – the very heart and soul of the UK high street – contracted by 7.5%.
It should come as little surprise that the major retailers are looking abroad for the next phase of their growth, because it increasingly appears that the UK offers nothing except stagnation in terms of sales volumes, pricing and profit margins. But launching into new markets is no easy task, and will require a huge level of support from their logistics suppliers and transport providers.
In a fascinating speech given to delegates at last week’s TOC Container Supply Chain conference in Antwerp, Jason Keegan, head of logistics at Marks & Spencer, explained how the company is moving away from its core focus of running stores on the high street – and with an 11% market share, it is the country’s largest clothing retailer.
“Our strategy is to become a multichannel international retailer. Yes we have a focus on the UK and we have to make sure that our brand stays as it is and our customers stay loyal to our brand. But it is really tough on the UK high street – I do sympathise with shipping lines; we too have cost inflation and face high fuel costs, we just don’t sell our product for less than it costs us to make them,” he said.
It currently operates 372 stores globally, forecast to hit 400 by the end of this year, with much of the focus on emerging markets, as part of its “Brics and Clicks” strategy – expect India, China, Russia and the Middle East to figure increasingly in the contribution to revenues and profits.
But it is also a strategy that will require a massive restructuring of its global supply chain. It sources from 750 factories with 300 suppliers globally, which is predominantly split 20% Europe, the Middle East and Africa, 40% from the Indian sub-continent and the remainder from the Far East.
Its annual box movements amount to 37,000teu, with UK inbound movements totalling 32,800teu, UK exports coming to 1,450teu, with the remaining 2,750teu being international shipments that never see the foggy shores of the UK.
“International movements were about zero when I first joined M&S four years ago,” he said, “The aim is get the goods moved from country of origin to country of sale without bringing it into the UK, and within two-to-three years that 2,750teu will be 9-10,000teu – because it seems particularly weird to bring stuff back from Shanghai to the UK only to send it back to sell it on the Nanjing Rd.”
One defining feature of its supply chain is how clothing-heavy it is, with 40% of all M&S’s container movements involving garments on hangers.
“We ship hanging garments like there’s no tomorrow, and we want shipping lines and freight handlers that will help us move those products much more efficiently – we want to be able to ship hanging garments out of Shanghai; we want to call at Colombo, where we want to unload the stock that will serve the Indian market; we want to reload that same container and move it into the UK; and having brought it into our distribution centre in the Midlands and unloaded it, we want to reload it and send it up on a train to Scotland where we will unload it and do secondary distribution.
“And then we would like to load it there for the whiskey trade and send it back to the Far East, because we know there is a shortage of containers in Scotland to serve that and it currently costs the shipping lines to send containers there.
“Now, when I think about innovation and talk to shipping lines and forwarders about innovation; that’s innovation – innovation is not slow-steaming. Slow-steaming may have saved costs in a small part of our end-to-end supply chain, but in reality the additional week in our supply chain that it takes that container to get the UK means that we have to spend tens of tens of millions of pounds of additional working capital to cover that additional week’s stock,” he said.
But he claimed that unless shipping lines, in particular, are able to enhance their own service offerings – by which he meant the whole relationship with customers rather than simply the liner networks – designing this sort of supply chain would remain a theoretical exercise.
“We have got to get a better service; a greater range of products. Why aren’t the shipping lines giving retailers such as ourselves a global P&L? Why do I have to argue over $10 in a different trade lane [to one that we might normally use] with a trade lane manager who is not interested in the fact that I ship 30,000teu in a different part of the world. I just don’t get it.
“As a retailer, when I look at my customers, I want a greater share of their wallets, and I design my stores to make sure that I entice them as they walk around, that they pick up another product and buy it.” Shipping lines need to look at the global level and global movements and do some sort of deal at that level, Mr Keegan said, adding that the support M&S gets from its partners is crucial to its success in new territories.
“Don’t just charge us a massive fee because we’re only moving a couple of hundred boxes a year; because it will grow due to the size and scale we have. And we have long memories about who supported us.”