Want to ensure India business is sustainable, says Steve Rowe7 min read . Updated: 08 Oct 2016, 07:22 PM IST
The new CEO of Marks and Spencer on the importance of both offline and online retail models, and his firm's plans for developing the local market
Mumbai: After 27 years with Marks and Spencer Group Plc (M&S), during which he’s worked in multiple roles across various departments, Steve Rowe took over as chief executive officer of the London-based retailer on 2 April. Rowe, who is set to outline his strategy for international and UK operations on 8 November, has already made two visits to India since April. On his first visit, he met Reliance Industries Ltd chairman Mukesh Ambani. On his present visit, which started on Wednesday and ends on Saturday, he spoke about the importance of the Indian market and his plans to develop it. Edited excerpts from an interview:
Can you tell us what the conversation with Mukesh Ambani was about when you met him the last time?
I came very specifically to meet with our partners Reliance in April. I was here literally for half a day. I flew in from Dubai and met up with Mukesh Ambani and went to one of our stores in Mumbai very quickly and left. The reason why I went to meet with our partners first is frankly because India is very important to us in so many ways. One of our closest partners is Reliance and Mukesh Ambani, and I wanted to meet him after I took over. It was very important to see him and talk to him about how committed we are as a business to India.
What was the conversation with him about?
We have been in the country since 2001. This is a good partnership, and we have a board in India and we are fairly ambitious on stores we think we can have in India over a period of time. We currently have 58 stores. We have an ambition for more stores in more cities. We are currently in 26 cities and we are growing substantially. Last year we grew by 17%. We continue to grow in India on like-to-like terms and in opening new stores. We are looking at opening 10 stores a year as a minimum now.
You also have two buying offices here—one in Delhi and one in Bengaluru—and those teams source goods for all of your stores around the world including India stores...
About 60% of the merchandise in our India stores is sourced from South-East Asia specifically and about 32% is from India itself. Also, about 7% of merchandise in our stores here is specifically for our Indian customers and sourced locally by the team here. This includes our linen collection.
In the past your colleagues have mentioned having 80-100 stores by 2016. You are behind your target...
I want to make sure that the business here is sustainable. So in a subtle difference from my colleagues I am not going to give you a total number. I don’t know what it will be. But what I do know is that we have a growing business here and as the team finds the right size, we will put through the process. We think it could be about 10 a year. If it’s more, it’s more; if it’s a few less, then it’s a few less.
What do you mean by India being important to you?
India is the second biggest region for sourcing. We source 38.5 million pieces of clothing and goods from here. We take everything from coasters to bedding to knitted goods, underwear, T-shirts and one of our suppliers here even produces a special range for disabled children.
How important is the India retail business to overall revenues?
It is becoming more and more important. It’s not only about opening more stores here. It’s also about the growth rates in India. It’s not only what we have today, it’s about what we will have in five years and 10 years. Right now India is relatively a small percentage of our revenues. We are very UK-based. Internationally, there are three big businesses— Hong Kong, we have been there for many years; we have a franchise partner in Middle East; and the joint venture in India. They are big chunks of what we do.
Recently India’s food processing minister visited the UK and met top retailers, including your company, in connection with setting up retail food stores and manufacturing here. Are you considering her proposal?
There are always conversations in the food business and one of the issues is India’s import legislation that has restricted us from discussing the project. Also, at this stage, the infrastructure and manufacturing capability here is not ready for our food. We make a very special kind of fresh food that is unique in the world and therefore there are some restrictions that need to be lifted. This is a growing population with very modern multinational tastes that is looking for convenience. Do I think it is going to happen tomorrow? No. Is it never going to happen? No. One day it will. There are opportunities here.
But have you thought about setting up food retail here at all, considering that it is so successful for you?
Right now, on the basis of the legislation, we are not even thinking about it. The scale we need to manufacture our food is not possible here. About 70% of what we sell in the UK is fresh food. If you were talking to Tesco, it is the other way round—70% is ambient or frozen. Therefore, everything has to be made fresh and delivered, which requires an extensive supply chain. Now we are very good at it but it requires highly capable factories. The cost of those is high and requires a volume of production to go through them. At this stage, I don’t see how we could do that economically.
What will be the growth platforms for you in India?
The primary thing is clothing. We see that as the biggest opportunity. We are becoming a little more confident in our understanding of what the customers in India need and want, helped by an able local team. The guys in the UK are being driven by the Indian office to do more products to suit this market.
Swedish fast fashion retailer H&M has opened close to 10 stores in its first year of operations here and is fast expanding as it finds acceptance among the Indian consumer. How does that impact you?
To a degree, it doesn’t. We sit alongside Zara and H&M in all our international markets. Actually it’s complementary and developing the retail scene in India in total. I like it whenever there are new retailers rather than less retailers.
But the Indian consumer does not have deep pockets and may not spend on all the brands. Does that worry you?
The growth rate of India is different from anywhere else in the world. The country is growing faster than anywhere else in the world. The population growth is faster than anywhere else in the world. I wish I had some of these conditions in the UK. So, I think, the market will continue to develop over the next 5-10 and even 15 years, which is tremendously exciting. Then I think the difference here is that you leapfrog in terms of the omni-channel proposition compared to some of the Western economies. In the Western markets, and not just with us, retailers are committed to the retail network of stores. Here no one is committed. It’s a small percentage. It’s good for us and good for India.
According to experts, bricks and mortar and e-commerce will constitute about 50% each of the organized retail market by 2020 as e-commerce is growing faster than the former. How do you see this playing out for your operations here?
When you look at the scale and potential of the Indian retail market for stores, that is a lot of people and money. Therefore, just because you have got a rapidly growing online market shouldn’t preclude you from growing in retail proposition and in online proposition. You should be able to do both. We are doing both here. We will keep developing formats both in stores and online, and use technology to join the two propositions together for things like collections.
Analysts are of the opinion that your large stores in the UK are no longer assets for you and you need to trim their number as sales continue to slide...
I can’t directly answer that as we are in a closed period in the UK for an announcement on 8 November. We are reviewing our total international business and the UK store state, and we will report back in November. What I can say is that I already know that M&S will have more stores in the future in the UK. They may be different because we will continue to expand our food network in the UK. We will limit our clothing space growth.