The ignominy of it. Marks & Spencer Group PLC (LON:MKS) could well fall through the trap-door of the FTSE 100 at the next re-shuffle for the first time since the inception of the blue-chip index 34 years ago.
We can’t take credit for spotting the possibility; an eagle-eyed Mark Potter of Reuters tipped off the pack.
READ: Marks & Spencer shutting high street shops
The story itself is interesting, but there are a number of aspects to it that haven’t been explored.
Ocado Group PLC’s (LON:OCDO) leap up in value on Thursday after its technology deal with American grocer Kroger means the delivery firm will likely replace Marks if does go down in the reshuffle next month.
And this changing of the guards is apposite.
Retail's new world order
Ocado is reflective of the new world order in retail. It is internet-driven and technology-focused food retailer.
It’s also at the growth-end of retail and re-purposed its expertise to become the go-to partner if you are starting an online service from scratch.
A recent video of its customer fulfilment centre – a large robot-staffed warehouse – showed a family’s weekly shop being picked and packed in just five minutes.
No wonder then that Kroger and a growing and impressive list of international retailers are adopting and rolling out worldwide the Ocado distribution blue-print.
Okay, we’re being a little unfair here comparing apples with oranges (Marks with Ocado).
ASOS and Boohoo mastering the art of fashion retail
The ascent of online clothes retailers ASOS and Boohoo make a more interesting case study with the market valuing the former at £1bn more than Marks.
Why is this the case when the High Street mainstay’s annual profits are likely to be seven-times more than those of ASOS?
Well, for a start, Marks’ earnings are very much in reverse gear, while its online rival’s were up 145% at the last full-year results and by 2020 profits will have doubled again. The market likes growth stocks and will pay a premium for them (in other words overpay for them).
But is just one factor in nuanced exposition of failure. Where M&S has struggled with its clothing ranges, particularly womenswear, ASOS has mastered fast fashion and also knows its audience in far more granular detail than its leaden-footed offline competition.
The internet is an existential threat
Today, the internet is a real and present danger, not just to Marks, but Next, Debenhams, House of Fraser et al.
Why sweat and fret for a day at the shopping mall when you can point and click with a glass of cold chardonnay in the left hand?
That Marks and its ilk reacted too slowly to the threat says much about the mindset of mainstream retail.
Where it leaves the former High Street staples is with a bunch of expensive shops where the footfall is struggling to keep up with the rents.
Our shopping centre owners are also starting to feel the pinch, which explains why there is a move towards consolidation.
And the grocery groups are taking defensive action with Wal-Mart-owned Asda planning a merger with Sainsbury’s that will create a £14bn of the supermarket aisles.
So, Marks’ relegation to the second division, should be seen not as an isolated incident, but indicative of the whole change in the landscape.