236. What M&S can teach Starmer (Part 2)

0:10Hello and welcome to The Best is Money with me Steph McGovern and with me Robert Perston and And with us again is Archie Norman. So we spoke to Archie in the last episode about the cyber attack on M &S, the impact it had on the business. And I mean, talking to him about it, it felt like we were listening to a spy novel, didn't it, Robert? It was fascinating. So if you've missed that, do listen back to that episode, that first part with Archie Norman, but still loads to talk to him as well now about the future of retail, where he sees M &S's future in all of that. Is it going to be a business that's still around in another 100 years?

0:48There's loads to ask him, isn't there, Robert? And there is. And he's also got very, very strong views about how we revive Britain, how we revive the British economy. So as you say, lots of big questions, lots of important debate. Yeah. So here is our chat with Archie Norman.

1:08more or less my first job in uh journalism way back in the 80s took me to i mean you know i spent a lot of time with with m &s back then and there will be some listeners who recall what an astonishingly sort of totemic business Marks & Spencer was back then. And it was regarded as actually a source of great British pride, that it was seen as arguably the world's best retailer. It was certainly, I think, within the top 10 most valuable British companies. It was obsessed with making a billion pounds of profit. And, you know, its status as this leading British enterprise had been there for decades.

2:06You know, and, you know, you've got this extraordinary history going back to the 19th century. But in the 20s and 30s, Marx and Spencer absolutely transformed the retail landscape. And then for a period, you know, the decline meant it was just, you know, another sort of, if not quite failing, but another not very well performing British business, British retailer. It had periodic attempts at trying to revive and none of them seemed to provide a sort of sustainable path back to sort of leadership. how i'm i suppose the question i want to ask you is how ambitious are you um do you think about you know i suppose an analogy would be with a sort of football club that's got an amazing history and then you know the question is are you leeds united or you know are you liverpool or arsenal yes it's a very interesting question because i think my view and stewart's view who runs mns is that the past is both your friend and your enemy.

3:14So look, only 20 % of the companies that were at FTSE 100 30 years ago are still there today. And a very high proportion, about half of them, no longer exist in the current form, in the form they had then. So we live in a Darwinian world, which is speeding up. And our objective is to be around for the next 100 years. So you've got a Chinese style 100 year plan. I'm not making decisions that are going to be very relevant in 2080 or none of us are. But our mentality is we're doing things that are not going to enhance our profits the next three years because we know we're going to create a growth business.

3:57And that's our offer to investors and employees. And that's brave. So few companies are prepared to be honest with their shareholders that it's going to take at least three years for the fruits of this to come through. When you look at M &S, and M &S was found in 1884 by Michael Marx, and he and his descendants, not direct descendants, but in direct sense, essentially the Jewish diaspora, built M &S into the great company that it once was. And they did so through a combination of absolute dedication to what they did, product, own label product, quality, innovation and value. And it was extraordinary.

4:37It was sort of unique with extraordinarily incidentally tight relationships with suppliers. So it was normal for them to do business with suppliers for whom they'd be 80 to 100 percent of what the supplier did. I remember. And we still try and do that today. Oh, do you still try to rebuild those long term relationships? Especially in food, with farmers, the many suppliers who we're more than half their volume. And we like that because it creates that interdependence. So the values, the principles of how we competed are still relevant today. But of course, that institutionalization, that sense of the great M &S, the entitlement that goes with it, the sense of corporate vanity, that's your enemy.

5:22and so there's a little bit of it when we started is we wanted to disrupt that we want to overturn that view completely fracture the culture and that means to some extent not discarding the past but taking the good things out of the past and being more humble well even symbolically when i arrived we had all the portraits of former directors sort of decorating the the boardroom and I just thought we saw living in this is part of living in the past believing that we're like we were then when the world has moved on You were a museum rather than a business Well I also felt that when I was chairing the ball meetings these chaps on the wall were frowning at me So anyway by the way we also had we had a Monet we own a Monet and a Lowry we were given by one of M &S families in trust.

6:20And that was on the chief executive's meeting room wall. And we all agreed that they would be better off in an art gallery somewhere. It's probably our most valuable asset today. But anyway, so where is it? Where's the money? Where can I see it? Oh, I think it's an art gallery in Leeds. But I may be wrong about that. I've got a copy I can show you. I'll send you a card. But my point is this, is you've got to fracture that because, As you said, you meet an amazing number of people who say, oh, I love M &S. I remember shopping in M &S with my mum. And I think, hmm, not quite sure how to take that.

6:58I wish you had said, I love shopping in M &S with my daughter. We're here to create a deeply contemporary new M &S, and we've got to be relentless about that. What we want to keep is the values of the product, unique product, quality, innovation, and value, and the entrepreneurialism. Because that Jewish diaspora behaved as if they owned the business. Now, on Monday mornings, the directors would have been out in the shops on the weekend, and they come into then Baker Street, and the walls would shake. Who the hell bought this? Who ran that promotion? Now, some of it was quite autocratic, but that was then.

7:43We don't do things that way now. I think the teacups would fly more or less literally at times. So it was different. But that ownership, that belonging, that sense of anger, that desire to disrupt, that's what we keep. And that's what Stuart Machen has coined, his phrase, of positively dissatisfied. so we want everybody to be positively dissatisfied with what we do not pleased with what we do so how much of what you're going to do then aren't you with m &s is going to be innovative and how much of it is going to involve ai because like you say you've got this incredible history but you don't think of m &s as being innovative do you you think of it as being that kind of traditional bricks and mortar business uh somewhere where you can get a good pair of pants and a good bra and some nice treat food.

8:33You don't think of it as this is going to be transformative to retail. Well, you're not cheering me up now because... Sorry, but I mean, you're telling me you are going to be innovative though, so what are you going to do? No, we are. I mean, look, we've got, over the last four years, we've had the fastest growing food business, give or take little, in the UK. We think we can double in size. We're bringing foods to the UK that UK consumers could never have before. We're working with our suppliers to develop more sustainable, fresher product. You know, we have the most sustainable, we like to think, agricultural product in the country.

9:10We are now hoping to get to year-round fresh British strawberries, just to give you some examples. So all grown in Britain? Yes. Extraordinary. In St. Lendi, our main supplier there is Dyson Farms. James Dyson's done the most phenomenal job, investing probably the most advanced berry-growing facility in the world. He'll never get a return on capital, and he'll play some horrible amount of tax on it. But it's a great favour of the nation, and they're brilliant, and we think we can get to the point of year round. We'll get to the point of year round. I don't mean – no, I mean excellent British strawberries.

9:48Yeah, I mean, not tasteless. It's extraordinary. So we are hell-bent on the innovation message. But I completely get what you say. I mean, there is a very deeply entrenched view of the M &S of the past. And some of our own people have held that view. And that's why. So where's the innovation in clothing, for example? We're looking at the clothing. What's happened in clothing is that over the last 30 years, UK and European manufacturers largely disappeared. There's some in Spain and Portugal, Morocco, Turkey. It's actually very high quality. The manufacturers moved to Asia. And that's not going to reverse anytime soon.

10:34We're constantly looking at different sources. But M &S went through this trauma of sourcing from the UK or through UK wholesalers. I remember. To shifting to direct sourcing from Asia. And now the innovation is coming from Asia or Turkey or Morocco, as I say. And that is all about different fabrics. You know, you always say it all starts with a fabric, the yarn you source that keep you warmer or wash better. I mean, I'm a great fan of Uniqlo. Do you look at them? I was in a Uniqlo yesterday, actually. What I love about Uniqlo is that just constancy of year round. There were probably used to be our nearest competitor on Kashmir.

11:20They're probably not now. I think they've lost a bit of ground. Stores have changed, but I love the simplicity of it and that sense of all round value and quality and consistency. And by the way, I've been to factories in Asia where they've got a five-year agreement with Uniqlo. And you see the Uniqlo line just running like clockwork month in, month out. Do you have any five-year agreements? That's where we want to be. In food, we have 10-year agreements. And we make commitments to food suppliers that nobody else would make because of the risk attached to it. But that is our model because we are all on label product.

12:03And what about using digital AI to understand your customers better?

12:10In boardroom conversations, it always turns to AI now. And everybody's got, in truth, this slight sense of everybody else is talking about AI. What am I doing? And when we talk to the shareholders, you have to come up with your AI narrative. and you can see stuff happening in your forecasting, for instance. AI can take into account the weather, the events, exactly what happened last year, the year before, and come up with a different forecast for food demand or clothing demand than previously. And you can see that starting to come through. That's going to come through for everybody. It's a great leveller, really.

12:51I mean, it's very difficult to see how you get competitive advantage out of it. What I think is going to change very dramatically in the next couple of years is the knowledge base. So when you come in on Monday morning in a retailer, you sort of wait till about eight o 'clock or nine o 'clock for the results from last week to come through. And probably some poor sods, you know, been up all night or got up very early to prepare the sales analysis and draw your attention to what happened to waste or availability. In future, you're going to climb into your taxi or Uber on the way to work and you'll just say to ChatGPT, or your agent, could you bring up the sales for last week and the important things that I should know about the performance, and it'll come up for you.

13:42So, the executive knowledge and understanding is going to become so much more dense, intense, and rapid. And that is going to be an extraordinary change. The boss of Sainsbury's was telling me one of the first things he gets on a morning now is the retail crime stats before he gets anything else in terms of sales figures. It's serious attacks in the stores and staff theft of products and things like that. Is retail crime something Marks and Spencers are worried about as well? Have you seen that become a problem and a problem that's getting worse? Look, I think we know it's getting worse. I think people are more conscious of it.

14:23I think we've seen, particularly in difficult areas, it's parallel to social disruption and impoverishment to some extent. But maybe we're in a slightly different place than Sainsbury's. So I don't think it's something we worry about, but I don't think we see it as being a sort of secular trend. So you can't see a day where you might have like facial recognition technology in the stores and things like that? I could imagine that you could have that for identifying prodigious shoplifters. So security around shoplifting, you know, shop crime. There's two forms of shop crime. One is the casual person who forgets to scan their strawberries.

15:18And you do get that. And probably our scanners didn't work very well, so they think, well, I'm entitled to this. And if our scanners didn't work, well, I get it. I get it. You get a little bit of that everywhere. But then a very high portion of retail crime is caused by a very few people. It's well under 1 % of the population. and typically they're people who are thieving to finance a habit of some form or a lifestyle of some form. And having some sort of security system that automatically alerts you when that person has come in, it doesn't mean they can't come in, but it alerts you, you could see some usefulness to that.

15:58Now, it does raise lots of issues because it means you have facial recognition. It means you're, you know, the privacy question means you're recognizing all your customers. Are people going to put up with that? Do they feel comfortable about it? Well, we'll have to see. I mean, your online sales are significantly lower than quite a lot of your rivals. What are you doing about that? When I started in clothing at home, our online sales were 17 % of total. They're now, well, They say now prior to the incident, they were running at 34%. So we've more than doubled. And our objective is to get it to 50%.

16:39Which is a sort of industry average, isn't it? Industry average is just over 50%. Yeah, next would be 55%. But by the way, before you think that means we're abandoning all your cherished high streets. No, I wasn't saying that. But I was more thinking about the future of the business. No, but the very interesting point is over half of our online shopping is picked up in a storm. Is that right? Yeah. There might be in a food store, but it's click and clicked in a store. And so this image people have of online is somebody driving up your gravel drive with a parcel. That's not actually how it works.

17:13It's people say omni channel. That's what it is. And is it frustrating that you don't control your food online business, Ocado? it's a joint venture uh robert and as you know joint ventures are never easy um you know we went in the joint venture because there was no real prospect of going online for full grocery shop with the m &s range and out of the store base we had we had an opportunity to replace waitrose we sought to do it in a very different way on any measure it's been successful you know it's growing currently growing about 12-13 % a year. But would you rather have a wholly owned business?

17:56I think you'd always rather have simplicity around it. But what we want to do is harness Ocado technology, the CFC technology they have with the power of M &S product. And remember, the Ocado retail venture is also sourcing the branded product outside of M &S. So it's bringing together those things. And this was the way we could make it work. Stable for the long term? I mean, is there a world in which you'd buy Ocado? I think you'd have to ask Tim Steiner about that at Ocado. I mean, look, it's a joint venture. It is what it is. The questions about what direction in time Ocado want to take, we want to take, but we're the best.

18:41No, we don't always agree on everything. I wouldn't pretend we do. And we are concerned to make this venture work in the best possible way to make it the very valuable business we think it can be. But we're also good friends. I mean, what Ocado have done is extraordinary. We don't have many successful technology firms in Britain. No, this is one of them. Who do you look to, Archie, in terms of businesses or people around the world who you think are leading the way in terms of retail and innovation? Like where are you, you know, when you're thinking about M &S's future, who do you look at and think, oh, we need to do a bit of that?

19:25Oh, look, I think the summit on our doorstep. You know, I think the next, what Simon Wolfson done with Next, I know Simon modestly well and I think he's a great guy. I think is extraordinary leader for. It's an astonishing story. It's a great story, a great story of, you know, transformation shall hold a value. It's quiet. I mean, I remember when it was when George Davis took the Hepworth stores and created it back in the 80s. And I mean, it felt fairly revolutionary, but my God, it was small compared to where it is now. It's incredible. And the idea that it would completely, for a period, supplant M &S.

20:02I mean, as you say, you're challenging and competing actively now, but for a period, it was so far ahead of M &S. Yeah, we give or take neck and neck or slightly ahead on market share, but you just can't take it away from what they've achieved. And Simon, I would say to anybody, if you want to be a student of the science of fashion, he's the person to watch. so I think some you know said to some of our doorstep elsewhere in the world you can never get past Walmart you know look at their share price what they've done in the last five or ten years it's gigantic it's completely different from us but you have to you have to be aware of that there are other people I love you know I love shops Stuart Machen is loves going and you know We go to Spain, to America to look at, there's lots to admire.

20:51We like Mercadona, extraordinarily successful, probably one of the most successful food retailers in Europe. Esselunga, I know the owners of Esselunga, love what they do, but it's very Italian, it's a different world. Their sourcing is very different. I work with Coles in Australia, which I think is now close to a world-class retailer. It's an extraordinary place in Australia because you can source pretty much all your food within Australia. Not like here. But they've got great leadership too. Tons more to ask you, Archie. Sit tight. We'll be back in a minute or two.

21:54For me, just sitting here listening to you, it's felt a bit nostalgic. As I say, M &S was literally the first company I immersed myself in when I was a reporter all those decades ago. When you went to Baker Street, there were butlers at the door. And it was a completely different world. You know, they were doing you a favour by meeting you. And, you know, it was regarded as this great privilege that you were let inside the portals of Marxism. It was an extraordinary institution. And it wasn't just that you've got the same experience when you went to a business, which is, you know, sadly, more or less doesn't exist, certainly not in its form, ICI.

22:39You had these were the pride of these institutions. I think I think they got over. I think they they became too proud and it then led to complacency and entitlement. But they were sort of great institutions in the way that there are not there are no private sector institutions like that anymore. But I think it's there is a bit of Britishness there to these establishment institutions. The pride that goes with it then translates quite easy into a sort of parentalism. We know best. Condensating attitude to suppliers, a slight dismissive attitude to competition. And that was their downfall. Yes. And after Rick Greenbury was sort of the last of the line, he ended up in controversy.

23:24But I knew Rick Greenbury and I went to see him in Baker Street. And it was exactly as you describe. And as a supplier, you had to sit in rows on these rather hard chairs waiting to be allowed in, didn't you? What era was this? When are we talking about? We're talking about the 80s. Before you were born.

23:46Yes, 1980s, early 90s. I think Rick Greenbury went sometime in the early 90s. That's right. And you went up. Incidentally, Baker Street had quite low ceilings. And that's because I think the directors of the time figured out they'd get an extra floor in under the planning rules. They cramped everybody in a bit. But people loved working there. And when you went up to the, it had linoleum lined corridors. And it was a job for life, something which doesn't exist anymore. You joined at sort of 16 or 18. And I mean, Rick Greenberry himself, I think, may have joined at something like the age of 16 and ended up as.

24:21Oh, yeah. And Steve Rowe, who was prior to Stuart, was the chief executive. is Steve started in a store at the age of 16. Retail is the gateway to opportunity. I mean, it really is a place. If you look at retail leaders can start with nothing. It's hard work. They have to work hard to be dedicated, but they can find a way out. But that old place, Baker Street, people around M &S, because we have a lot of longstanding colleagues. Do you still have lifers in the business? Oh, yeah. We've got people who work for us for 50 years plus. One of our executive team members has been more than 30 years. You meet people.

25:02They'll tell you, Baker Street, they loved the old place, even though it was a terrible place in many ways. And it did have the, I think it was the fourth floor, might have been the fifth floor, was the director's floor. And it had everything else with the lonely and light corridors. This had rich pile carpet and traffic lights outside the doors. Now, this was paternal. The traffic lights were extraordinary. They literally, outside the director's office, they literally had a traffic light system. And if it said red, you didn't even dare knock. Yeah, so the finance director wanted out of a snooze after lunch.

25:35He just turned on the red light. That's right. And you left him alone. And then you went down the corridor. I went for lunch there with Keith Oates, who was the finance director. Oh, my goodness. I remember Keith, yeah. And it all ended up in tears because he tried to mount a coup against Rick Greenbury. but Keith we went down the corridor to this very long dining room where the waiters came with striped trousers and white gloves really and on the walls was guess what the money

26:05it was a different era but you know although we laugh about it now a lot of British companies were like that then and I feel I spent a lot of my life trying to fight against that and to turn it over. And you still find bits of it around now. And I suppose the bit that makes me sad about all of this is if you look at the FTSE 100 now, obviously there are some great, ambitious companies that want to, you know, they want to be world leaders. But if you compare the corporate ambition that we had in the 20s, 30s, 50s, 60s, 70s. We don't have the same. I'm afraid, I don't think our private sector, when it comes to big companies, we've got amazing numbers of smaller, particularly in the digital and life sciences and AI space.

27:04We are creating what they call unicorns, billion pound companies. Too often, though, we've talked about this a lot on this podcast, this podcast, when they get to the point where they could be world leaders, they sell out to America. They sell out to either an American giant like Alphabet or they get their scale-up finance from America or Singapore. And, you know, we would so desperately love to see the kind of ambition here in Britain where you can be British and aim to be a world leader. A hundred percent. And that's why I think we should be undiluted in our commitment to create an economy and a society where people reward hard work.

27:51I just think hard work now, as you were saying earlier, is almost deprecated. Working from home, three-day weeks, all this. I know people don't mean it that way, but reward hard work, reward investment. You know, if you want to build unicorns, you can't say to owners of companies that you can't pass it on to your children unless you pay 20 % tax. You can't do that. If you want to reward farmers, and incidentally, we have competitive advantage in farming. We have some of the best farms in the world. I mentioned Dyson earlier, but also, you know, we're brilliant at cattle, we're sheep, we've got great grass, but we treat it as something to regulate and diminish.