Good morning, everyone, and Welcome to our Capital Markets Day. We did the half-year results last week, so today is all about looking forward. We took your feedback last year. You wanted a deeper dive into Fashion, Home & Beauty, so the majority of today's session will be John and his leadership team talking through FH&B. I am sure all of you will be shopping with us at this Christmas, but please spread the word.
We really want to deliver an outstanding Christmas, and I think we are well set up. Just before I do some introductions to my leadership team, can I welcome some of our board here? Archie, I am not sure where Archie is sitting, but Archie, I think, is at the back with us. And three of our board are at the front here. Fiona, our SID, Roger, and Sean, two of our newly appointed non-executive directors.
So welcome. Then, just to introduce the leadership team, because we have a strong leadership team. We are a pretty tight team, work very well together, challenge each other, but very much support each other. So if I kick off with Alison, our CFO. Alison has been with us just under two years as our CFO. The one year was in our incident, but very much settled in, and you will hear from Alison later. Nick is not just our legal counsel, he is our wise counsel. I think every day, Nick and I probably have three or four sessions a day. Nick has been with us eight years on our ExCo. Mark, if I can introduce Mark at the back there. Mark has now been with us four years. Mark started as our Supply Chain Director in Fashion, Home & Beauty.
Did two years there and has been running International for two-plus years. Alex was appointed just as I became CEO as our Managing Director of Food, four years in, firing on all cylinders. John Lyttle, who you will hear from today. John has been two years in, obviously just under two years, but the first year was through our incident, so really just one year leading our transformation in Fashion, Home & Beauty. Thinus.
Morning.
Thinus is our Retail Director, and Thinus has been our Retail Director for just over a year and a half, reviewing all our end-to-end ways of working, processes, how we are getting closer to our colleagues and closer to our customers, and definitely has made a big impact as the voice of the shop floor. Hayley, our Chief People Officer. Where is Hayley? The back there. Hayley and I worked together many years ago. I cannot remember how long ago, in Tesco. But Hayley has had a lot of HR experience, but also operational experience as well at her time at Tesco and recently Asda. Alex, our new Corporate Affairs Director.
Morning, everyone.
Alex replaced Victoria, who actually WhatsApped me this morning wishing luck on Capital Markets Day. Alex has been our corporate affairs director now and overhauling all of our internal and external comms for the last 12 months. We are delighted to welcome John.
Morning.
John is our new Chief D&T Officer. The great news about John, he has been there and done it all. So we have a very experienced now head of data, digital, and technology. John was previously 10 years in the same job in Woolworths Australia and led D&T across the supermarket business, the discount department store business. I said to John, "Are you shocked about anything you have seen here?" He did say, "I have seen it all before, although here may be a bit worse, and there is lots to do." Our eyes are clear and wide open. Of course, Sacha.
Morning.
Sacha has been with us 32 years. We announced Sacha leaving us next April, but I should just pay tribute to Sacha because we have worked together very closely since I joined M&S in 2018. He has been an absolute rock to all of us, and has led our recovery as well as our sort of Chief Recovery Officer. I did say to Sacha, by the way, I am writing a lot of references for Sacha as he leaves, so I think he is not short of board opportunities as he goes into next year, and none of them are competitors.
I did say to Sacha, "You are not really going to leave, Sacha, are you?" You will not know this, but there is probably not a day that goes past where myself or my team do not ring Sacha for some piece of information, because over 32 years, he has done most jobs, including PA to two chief executives, and he has this encyclopedia of everything to do with M&S. A few weeks ago, Sacha handed over his laptop with everything of the 32-year history on. Sacha actually does not really leave because we are so much on the front foot in M&S on AI, we have created a Sacha agent that he does not yet know, but he is about to see today. You will see AI Alex, and the only reason I realized this was AI Alex is because in this film he looked a lot younger.
We have got AI Alex showing you how we are going to use Sacha for the next few years. Sacha will always be around.
Sacha, how is retirement?
Very good, thanks, Alex. Although when you said I would never have to sit through another trade meeting, I clearly should have read the small print.
We are not shifting enough of these. Do we need to take price action?
Not everywhere. The sell-through problem is much worse where the product has poor visibility.
Hold the price?
For now. We have seen this before. Gold coins were only 19% sold through, but the answer was not immediately price action. It was bigger, bolder displays. Compare that with Christmas liquor at 3.9% sell-through, where we did take price.
Which are we looking at here?
This looks closer to an execution problem. Improve the display in the affected stores first. If sell-through doesn't respond, then take targeted price action.
How long do we give it?
48 hours. Then review sell-through against the stores where execution is already strong.
Okay. Set that up for the team.
Sacha, you will be around for years to come. All of us, of course, work closely together and rely on each other, but we share the same values, closer to our customers, closer to our colleagues. All of us believe in this transformation, aiming higher. We do the strategy, but what is very important in our culture as leaders is we are very close to the detail, very hands-on in the execution of everything you hear about today. We are moving at pace.
As we just reflect on where we are, just some reflections from me over the past 18 months. I think the first thing is we recognize that the incident that we went through definitely took its toll, but we have come out stronger. I think how we have recovered as an organization with the hard work of our colleagues and the unwavering support from our customers has been excellent.
In many ways, we have put this really behind us, and we have started to accelerate the pace of change. I think one of the other things, although we were not prepared for something like that, it made us even stronger and more resilient. The other big reflection is trust, because when we set out this plan in October 2022, we talked about a few things, like product being overwhelmingly important to our strategy. But we also talked about trust and being the most trusted retailer and most trusted brand in the U.K. We have been voted that for five years in a row from the general public, when you look at the latest results from YouGov.
Importantly as well, when you look at all of our perception data, whether it is in food or fashion, home, and beauty, you will see that we have widened the gap further on key metrics like quality, service, value. Our culture is also transforming. Our culture, as I said, from a leadership perspective, is very sleeves rolled up, into the detail, accountable, getting the job done, closer to customers, closer to colleagues. Also what is important is M&S is not run by one person. It is not run by just the leadership team of a dozen people. But with 65,000 colleagues across the organization, we want to be very clear on the decision-making accountabilities, but also make sure everyone has a voice. There was a time when I remember joining M&S where actually to get the unvarnished truth on the table was quite a challenge.
The culture was slightly defensive, protective, probably more glass half full than glass half empty. When we talk about positively dissatisfied, it's not a negative in M&S. It's about cheering each other on, recognizing progress, but also being very grounded on the issues, the opportunities ahead of us. Our colleagues do speak up and have a voice around the table. The pulse survey, we get inundated with feedback on what's working, what isn't working. Straight to Stuart, a scheme we launched just under four years ago. Over 15,500 colleagues have written directly to me with their thoughts and ideas. We have big business improvement group. Every store has a rep, every area of the store support center, every part of our distribution network. We have national reps, the National BIG team.
Our Chair of National BIG attends our board meetings, so the voice of the colleague is always at the heart when we're having discussions around the board. Same for the Executive Committee. I meet with National BIG every four weeks. Alex chairs our store support center, BIG. We make sure our colleagues' voice is at the heart. Definitely in terms of our culture, now the unvarnished truth is always celebrated. We recognize what's good, but like you saw on the video there, we also talk about the issues, because for us, if there's a problem, it means there's an opportunity to improve and an opportunity for future growth. The other reflection is, I remember reading every book on M&S before I joined in mid-2018, and it was very clear that we are a product company. Product is at the very heart of our strategy.
In product, we know that whether it's fashion or food, our feedback and our perception data is improving every year. In Fashion, Home & Beauty, the team have made big steps forward in improving on quality, on style, investing in value. In food, we're leading on innovation. That's part of the M&S magic. Also in the food team, we're investing in quality, and I know Alex has already had a few questions this morning already about food margin, and we'll cover that shortly. We need the flexibility to reinvest in quality, and already in the first half, the food team invested GBP 50 million in value. That's why we're outperforming the market on value and volume, as today's results show as well on Worldpanel. The other key reflection is our transformation, because our strategy that we laid out four years ago hasn't changed.
We update it, we review it, but it's very much the strategy we set out a few years ago. There is one key observation that the incident did teach us. All roads lead to D&T, because we can't relaunch our loyalty program, or we couldn't have relaunched Sparks without the significant work across D&T. We can't open a new store or a new distribution center. When we announced acquiring Lichfield for John's business straight away, that requires resource in John Hunt's part of the business in Digital and Technology. We can't improve our online experience. We can't implement our new merchandising systems. We can't do any of that without D&T. There's something we've learned as a leadership team, which is we all have to be tech leaders.
And that's a responsibility we have all taken on in the past 12 months, where tech is very embedded into the business and each part of the business, but headed up, of course, with John, now he's a few months into M&S. In the last 18 months, there has been some issues where we haven't quite reached our full potential, because in the spirit of unvarnished truth, in Fashion, Home & Beauty, we actually wanted to perform better in our first half and were determined to improve in the second half and beyond. As I said, the team are all here today, and you'll be hearing from all of John's team throughout the course of this session. Our product has come a long way. How we source, how we design, how we work with our partners, our style and quality and value has moved on.
But we got some things wrong, and that's why the transformation in Fashion, Home & Beauty, the backbone, the end-to-end behind the scenes, is just so critically important. Because during this first half, we didn't get stock availability right. Most of that was due to the hangover of the incident when we were placing manual orders. So our availability wasn't good enough. Our sizing wasn't good enough. We still hear every day that we run out of small sizes, particularly on M&S Women and also on our M&S Man categories. So we've learned some lessons on stock flow. It's been pretty challenging. Our cost of doing business in Fashion, Home & Beauty is too high. The incident did expose our systems and our processes and our ways of working in this part of the business, and John will cover this with his team today.
There's another thing around culture and how we work. The team, as part of their transformation, is also leading and has to lead quite a big cultural change, because we are one M&S at the end of the day, and we share the same values and behaviors. But in other parts of the business, like M&S Food, we're way further ahead, where we started our transformation earlier. To be blunt, in Fashion, Home & Beauty, we have to be clearer on our strategy, sharper on our execution, move with pace, be quicker in our decision-making. And absolutely make sure we're closer to our customers, closer to our colleagues, and embed much faster, more efficient ways of working. We talked about reshaping M&S for growth. We set out key targets in our first Capital Markets Day in October 2022.
1% market share growth in M&S Food, 1% share growth in Fashion, Home & Beauty. We set out operating margin targets of 4% M&S Food, 10% in Fashion, Home & Beauty. You will recall in the second year, we slightly updated those by saying greater than four, greater than 10. We set out a target of GBP 600 million in restructured cost savings. We talked about disciplined capital investment on three key areas: stores, supply chain, and D&T. If you look at the progress we've made since setting out those targets, you can see in M&S Food, our market share has grown from 3.4% to 4.2%. If you include Ocado, which we don't in our double in the M&S Food business target, we're currently running just under 4.85% market share. Our M&S Food margin is also on track. In the half, we reported 5.6%.
But of course, it is really important we do not just focus on the rate. We always talk about cash is king, and we want to focus on sales, volume, and cash margin. In Fashion, Home & Beauty, we have made progress. Our market share has gone from 9.4% - 10.6%, so we are on track. We have to remember, the market in Food is actually flat and has been so far this year, and we are outperforming that.
In Fashion, Home & Beauty, the market is actually down 8%. As I said on our half-year results, if you look at the past six months, if you compare to two years ago, GBP 1 billion of sales have come out of the fashion market. So we are outperforming the market, and our share in H1 was a record share number at 11.2%, online just over 10%, but actually in a very challenging market.
Our margin is off track because we underperformed our expectation in the first half, and we expect that to improve in the second. If you look at our operating costs, we are on track to meet our target. 75% has been achieved. You look at our return on capital employed from 12.2% - 15.3% in H1 this year. On a net funds basis, four years ago, we were negative GBP 340 million, and now we are net funds positive GBP 375 million. We are very disciplined on our capital investment. We have clear hurdle rates, and we will be discussing that later. We slightly updated our target in Food because we believe our Food margin should be around 5% on an ongoing basis. I do not know many successful food retailers who deliver margins above 5% and 5.5%.
They normally get themselves so handcuffed to a percentage that they then do not invest in the business, and that is not our plan. Our plan is to continue to grow our Food business, to double our Food business, to lead the market, and as we talk about in both our businesses, if in doubt, we invest in quality, and we constantly invest in value. That is what we will continue to do this year and into next year. Of course, today, we announced we have doubled our dividend because we feel that we are in a good position, and it is all about sustainable returns to our shareholders. When we think about the long-term opportunity, as we say, lots done, lots to do, but so much to get after in the years ahead.
Our strategy about protecting the magic and modernizing the rest is the same strategy we discussed four years ago. The magic is very much about the 142-year history of M&S, product being at the very heart, making sure we are leading on value, quality, service, and innovation. M&S was never premium. It was always great quality at a very trusted everyday price. We are playing catch-up, and I have said this before. When we think about the key areas of investment in stores, supply chain, and D&T, we are really playing 20-plus years of catch-up to invest and reinvest in those three strategies. If we think about a key fashion retail competitor of ours, they were investing in stores 20 years ago. They have spent 20 years investing in their store estate, and now benefiting from that investment.
That same retailer started investing in supply chain 20 years ago, and now see the benefits of that investment. We are catching up. I do not know any other retailer who is investing and reinvesting like we are, reinvesting for future growth. We are one of few or one of the only retailer investing in our store estate and our supply chain. When we look at our customer growth, our customers have grown 10% over the last few years. There has never been as many households shopping with M&S as there is today. As I said, we have been voted the most trusted brand for five years in a row, and we take that really seriously. Trust is at the very heart of everything we do, and we know our customers say they have more of an emotional connection to M&S, especially in food, than any other retailer.
Across our fashion business, we have widened the gap on our perception. In fact, in womenswear especially, we have made good progress, remaining number 1 for quality. Value, four years ago, we were ranked fourth on value. Today, we are ranked number 1. On style, four years ago, we were ranked sixth on style, and today, we are ranked number two. Of course, there is always opportunity, and we think about food. We have a big opportunity for more customers shopping more frequently still in our food business. That is why we are investing in our supply chain and renewing our stores. In Fashion, Home & Beauty, the same, where we know we have got a big opportunity of more customers cross-shopping. In M&S, we serve 34.5 million customers a year, but only 40% of those customers cross-shop between fashion and food.
If we think about in Fashion, Home & Beauty, 21 million customers shop that business. Even in Fashion, Home & Beauty, 50% of our customers shop one category only. In womenswear, if we look at our female customers, only 25% shop outside of womenswear areas like beauty, and that is why we see an opportunity with our partnership with Sephora. We also have an opportunity to grow frequency. If you look at our under 35s, today, we have 8.2% market share. Two years ago, that was 5%. On 35 - 55s, two years ago, we had 7% share. Today, that is 8.5%. On over 55s, we have seen a slight decline. When we set out this strategy, we were very focused on growing these two markets, because as you know in the room, you would be challenging us, saying, "Your customers are aging.
What are you doing to get after these two sizable markets?" So you can see progress here. What we also have to remember with this market is it is still a big opportunity, and we do not want to alienate the slightly older customer. We still have and we still run M&S with three accountable businesses, food, fashion, and international, and we have clear strategies in each of those businesses. In food, we have already laid out, as Alex always says, to be more of a shopping list retailer, grow with families, and in our store renewal program, the idea was always a mind of a supermarket because we want to be efficient, but we want the soul of a fresh market, a different customer experience to other supermarkets. Our ambition is to double the size of the food business.
In fashion, home, and beauty, we know we want to win at the very core, because although we like our fashion, actually, the majority of our sales and profit are core volume value everyday items, denim being a classic example. We want to lead on quality and value, but we also want to make it a lot easier for customers to shop a store, our website, and our app, and John's going to go into some of that detail later. The ambition we laid out was to double our online business. In international, we talked about bringing the best of M&S, but our international strategy is capital light. It is about working with franchise partners who know that market, who are the experts in their part of the geography.
The plan remains the same, to double our Food business, to double our online business and reach 50% participation, and build a global brand. In doubling our Food business, as I said, we have low market share still on these categories like grocery and frozen. When the Food team talk about becoming more of a shopping list retailer, we know we have some big opportunities in these categories. We know we are growing our market share with families, but as you can see from the slide, there is a big opportunity. We know in our new stores and our bigger stores, we have a higher average basket, and we have a higher share of the family main shop. If you look at the progress in Food, as we know, is predictable, we are clear on our plan, and we are executing well.
When we set out the plan, we were at GBP 6.8 billion. Our results at FY 2025 were GBP 9.1, and by the end of this financial year, we will be over 50% of the way to doubling the size of our Food business. We are on track. In fashion, home, and beauty, we have made progress, but there is so much more opportunity ahead of us. In fact, when you look at this slide and you look through history, you will always see we underperform in spring/summer, and we normally perform well in autumn/winter.
That is because in autumn/winter, it is more core, and it is more M&S and more what we are used to, and we find that a lot easier. The opportunity is to get the core and the availability right and the volume and value in spring/summer. But there is some interesting data when we look at our customer data.
Our online share is, of course, 10.2%, and that was a record number for us in the last market share data. When you drill underneath that, David Clark, our new online Director, is presenting today. We have put him on the stage just a few months in, but he is already making quite a difference. Our womenswear share in stores is 10.4%, but online, our womenswear market share is 7.8%. When you look at menswear, our menswear market share in stores is 12.5%, but online is 7.5%. If you drill down one level below that in menswear, if you look at men's suits, our market share in stores is 17%. Our market share online of men's suits is 11%. We see a big opportunity in this journey to doubling the online business and achieving our 50% participation.
Although we have strengthened our perception on style, quality, and value, we also know there is so much more to do. Because as this chart shows you, it shows you that with all of our customers, we have strong value perception, particularly with the older customer. You will see with our female customers, the younger customers don't rate us as highly for value as our older customers. What's very clear in all of our data is our younger customer groups who are shopping also secondhand and in very low-price retailers, stores, and online, they're expecting sharper value. Our reinvestment in quality and value in Fashion, Home & Beauty is critical. We've done some good work. Charlotte, who's in the room today, led a big campaign investing in lingerie. We launched the GBP 10 bra, and our sales went up three times.
The same applies to denim, where Maddy invested in value with our barrel jeans at GBP 30, and the volume increased significantly. Although we've widened our perception data on style, quality, and value, there's a lot more we have to do to sharpen up our value as we move forward, especially in a market that's as challenging as it is today. We see this as a big opportunity, and when you look at the numbers online, when we set out this plan, our online business was GBP 1.1 billion. Our results in FY 2025 was GBP 1.4 billion. At the end of the financial year, we'll be over 30% on our way to doubling the size of this business. Of course, building a global brand is one of our strategies, and I'll hand over to Mark just to give you a quick update on international.
Hi. I'm here at one of our modernized stores in Istanbul, which opened its doors to customers April just gone. This week, the team and I have been with all our strategic partners here, talking about how we accelerate our global growth, bringing the best of M&S, but leveraging their expertise. When I met many of you at Capital Markets Day last year, I said that success would depend on rebuilding the foundations of our international business, bringing it closer to our U.K. businesses. Since then, we've been focused on how we build the scalable operating platforms across online and wholesale, alongside how we modernize our franchise partnerships, whether that be modernizing our agreements, modernizing the product assortment, or modernizing our stores. Our approach is simple.
We are concentrating investment behind the regions, the channels, and the partnerships where we have the strongest right to win, and using a range of capital-light models tailored to capture that market, we can effectively and sustainably grow. It's not growth at any cost. Fashion franchise remains fundamental to our growth. Increasingly, we're focusing on smaller number of strategic partners which bring local expertise, established supply chains, access to prime locations, and strong digital capability, and the ability to invest alongside us. Central to this is the end-to-end fashion transformation you're discussing today with John and the team. Initiatives such as global critical path, shared merchandising and planning systems, and a global approach to product development will enable us to operate as a leading global fashion brands, as others do, and our partners now expect.
Fashion online will also be one of the biggest growth drivers, giving millions more customers around the world access to the brand. Over the past year, we have established a clear online operating model, expanding our marketplace presence through partners such as Zalando and Amazon, strengthening our customer acquisition and CRM capabilities. We have also improved fulfillment across Europe through ZEOS and started building similar local fulfillment solutions across APAC and the U.S. Building on the success in fashion, we are evolving that model to unlock the opportunities in food. Last week, we announced a new business model with a long-term partner in the Middle East to bring more food to more customers across that region. It is just another good example of how you can combine the strength of M&S product engine with our partners' local capabilities to accelerate growth.
Our food wholesale business is helping us to build brand awareness and scale quickly in markets where our presence is still developing, such as the U.S. and Australia. While there is still so much more we need to do, we are now firmly focused on execution and creating a long-term, profitable, and resilient growth engine for M&S. Our plan is very disciplined and capital-light, leveraging the strength of our partners and the capabilities we already have here at M&S. We are becoming increasingly confident that the international can play a bigger and more important role in the future growth of M&S.
We talked about reshaping for growth, and recently, we changed that to reinvesting for growth, because we know that we have such an opportunity ahead of us in those three strategic areas of stores, supply chain, and D&T. Actually, one of our first jobs we wanted to do is strengthen the balance sheet. As you know, we are in good financial health. Our balance sheet is improved. We have been in net funds for three years. Our gross debt has reduced in the past 10 years. Our net debt to EBITDA ratio has improved, and we have a strong investment-grade balance sheet. That means we want to continue to invest in our three areas that we have talked about. In-store rotation, we have made good progress, of course, in food. Still, at the end of this financial year, only 45% of our store estate will be new or renewed.
These stores are performing well, and they are providing good returns, but we have still got half the estate to finish over the years ahead. In fashion, home, and beauty, we are really just at the starting blocks. Pantheon store was our first R&D store for FH&B. It is a store that is 100 years old. As we are planning to redevelop at some point Marble Arch, we knew we wanted a flagship in Oxford Street.
We do have some big stores like Pantheon that we need to make a decision on in the years ahead, because these big stores, like Marble Arch, like Pantheon, like Kensington, like Princes Street in Edinburgh, these stores have been left a long time because they are difficult decisions. So, we wanted to create a new fashion format. Alex and the team also updated the food blueprint in Pantheon. In food, we are performing 65% up on the pre-renewal numbers.
In fashion, sales have gone up 35%. In fact, M&S Women has gone up over 50%. That does not mean we will be fast-rolling that blueprint out yet, but we will be taking the best of Pantheon, the things that really resonate and work, and doing a couple of stores in fashion over the course of the next six months. As you know, we acquired 12 Homebase stores, and actually, we've done seven of those so far, with five left in the next couple of years. In the main, they're performing incredibly well. Some have surprised us. Areas like Poole, where we beat our plan by 35%. Abingdon, it's one of these, you know when the fashion sales are down, everyone says the weather, and when a store's down, everyone says it's roadworks.
Whether it's roadworks or a congested car park, actually, Abingdon is performing well, and the paybacks are still very strong. It's just slightly behind the plan we set. When I think back to when I joined in mid-2018, we were looking at food stores, and we were then deciding a new strategy for food in saying, "We will not open any store that takes below GBP 100,000 a week." We then updated that to GBP 150,000, I think, Sacha. Then we said, "If we can't do GBP 200,000, we won't open." Now Alex is in the space of, "If it can't do GBP 350,000 or GBP 400,000, we won't open a new store." So we keep raising the bar for these higher performing, higher trading stores. There's one other example in our store rotation program, which is Doncaster.
We had two stores, and we knew we needed to close one store, consolidate in one store, renew that performance, and actually, that was the right decision. In totality, less space, higher productivity, higher sales, and store contribution. So, store rotation, we're on track, but we've got a lot to do in the next five years, whether it's updating our food stores or starting to slowly roll out our fashion, home, and beauty blueprint, but also facing to some big legacy stores that we have not faced into in the past 25 years. Supply chain is also one of these big areas of investment. You may recall, it was just four years ago we acquired Gist because we needed to own our supply chain in food so we could get operational efficiencies and then map out what the future food supply chain could be and should be.
In food, we have a clear plan. Later, John will talk about supply chain in fashion, home, and beauty, but let me hand over to the real Alex on video, not AI Alex, to touch on the food supply chain strategy.
I'm Alex, Managing Director at M&S Food, and I'm here in Daventry in what will become our new national distribution center. At last year's Capital Markets Day, I set out our ambition to double the food business by becoming what we call a shopping list retailer, focused on families and with the soul of a market. We're making progress on that plan by delivering against our four priorities, which are investing in quality and value, growing the food store estate, increasing the capacity of our logistics network and supply base, and by reducing operating costs so that growth converts into stronger returns. In this update, I'm going to focus on how we're building efficient capacity within our logistics network to enable profitable growth.
For those not familiar with the U.K.'s geography, Daventry is located at the heart of the U.K.'s road network, right adjacent to the junctions of the M6 and M1 motorways, which together form the spine of the U.K. road system. The investment we're making here is GBP 340 million over six years. That's the largest investment in our food supply chain. The new site, as you can see behind me, is big. It will total 1.3 million sq ft when complete. This building will contain automation in both chilled and ambient operations that will help to reduce our cost per case by around 20% once operational. As you can see around me, we've almost completed the shell of this building, and the concrete is actually being poured live behind me as I speak today.
The next phase will be the internal fit-out, and that will include the installation of the automated chilled and ambient systems. The integration with our warehouse management systems will follow, and then following that will be the full commissioning period. The site will commence operations in 2029. The automated capability we're installing here at Daventry uses proven technology that will allow us to pick and build store deliveries more accurately, with more consistency, and with cages sequenced in a way that is easier for store colleagues to receive, move, and replenish stock. That means fewer manual touchpoints in store. One of the 200 stores we're going to service from this site will be Abingdon, which will receive both its chilled and long-life ambient deliveries direct from here in Daventry.
I'm here at Abingdon, stood in produce, where you can see our soul of the market format come to life. To operate this new level of automation, we are also upgrading our warehouse management system. Our DC in Thatcham transitioned to this new system earlier this year, and planning is underway for the next site to transition after Christmas in 2027. Even before we finish Daventry, we're opening a regional distribution center in Avonmouth later this month, which replaces an end-of-life site in Bristol. Avonmouth will initially support a small level of operations over this Christmas before the installation of a mechanized sorting system begins in February next year. The site will become fully commissioned in 2029. As with Daventry, our approach has been to select mature, proven technology that will drive productivity and increase capacity.
We are investing heavily in supply chain. We are investing in store rotation. We have even bought some freehold sites so the food team can build some big flagship food stores, particularly one in Alex's local area, where he lives. We are investing, and we are confident in our food plan. Of course, the third area of investment is D&T. As I said, all roads lead to D&T. We have been modernizing our systems, simplifying our systems, but we have so much to do. We have removed 100 legacy systems in the past 12 months. That has been a saving of around GBP 5 million, but that is just the start. We have to do some big programs like SAP upgrade. That is a program that is going to take two and a half years to complete.
John will talk about some of the systems, like merchandise planning systems in our fashion business today as part of his session. We have to tackle the cost base. Alison will bring this to life in her session later. But we have a big task around mixing our resource differently and creating some efficiencies in our everyday cost spend. We are leveraging AI, but we are not really spraying and praying. We need to be very focused. I mean, Copilot, I do not know how we now imagine a world without Copilot.
I even wrote this morning into Copilot, "Give me the seven questions I am going to get asked today at the Capital Markets Day." In our presentations, I know my team say, "Tell me the three things Stuart is going to ask about this presentation," and I go into Copilot and say, "Now give me the three questions my team aren't expecting." We are all getting used to Copilot.
But actually, there is some really serious work going on in food forecasting, using AI in marketing, coding in D&T, and also things like Ask Sacha or Ask Stuart. But in retail, actually, Thinus is leading a big simplification program so we can put more hours on the shop floor and helping our stores answer queries in this program called Iris. I will hand over to the video to give you a quick insight to what we are doing in our stores.
Let us just look at delivery over the medium term, just to highlight some of the key programs. If you think about in this next 12 months in store rotation, 210 full-line stores, 350 food stores, and launching Sephora. Years after that, we have more stores rolling out our beauty concept with Sephora, 200 full-line stores, 390 food stores. In supply chain, you have heard that Avonmouth has already gone live manually. We will be opening our national return center in fashion. John will talk about that, and John will also cover Lichfield. We will open Lichfield manually for manual orders January 2027. We have investment in Castle Donington, automation later in the year in Lichfield, and mechanization in Avonmouth. Beyond that, you can see from Alex's video the investment in Daventry.
In D&T, this is just a very high-level update, whether it is the Delivery Pass online, whether it is the planning platform in Fashion, Home & Beauty, finishing the Iris rollout in our stores, M&S Pay for our customers online, product lifecycle, and digital product creation in Fashion, Home & Beauty. Of course, SAP upgrade is a big program that John and Alison are leading across the whole organization. A big impact, but a big benefit in our finance systems. SAP touches everything across the organization. Of course, things like electronic shelf label rollout as well. Value creation is, of course, really important, and the model is very simple because it starts with our customers.
Our model is a stronger customer and product proposition, reinvestment all the time in our quality and value, attracting more customers, shopping more often, leading to volume and sales growth, higher margin and higher cash generation, and reinvestment for growth and returns to shareholders. Our capital allocation priorities are very clear. Maintain a strong investment-grade balance sheet focused on free cash flow generation. Our next priority, to reinvest cash into the business to generate strong future returns. Our third is to deliver increased shareholder returns by growing the dividend at least in line with our earnings over time. Of course, we announced the doubling of the dividend this morning. As we grow and deliver, return excess cash flow to shareholders over the time, providing it does not limit future growth, because we must have a sustainable capital allocation strategy.
If you look over the past few years, you will see that our PBT has grown from GBP 453 million -GBP 875 million two years ago. Our EPS from 18 pence to 32 pence. In fact, even in the half, and the mix was different, PBT of GBP 403 million was still the second-highest PBT in 15 years. Although we do not really focus on our share price, we notice that our share price and TSR, of course, has grown ahead of the FTSE 100, so it is a start. We want to make sure we deliver for all of our stakeholders. Our customers, giving them the quality products at the right price, trusted price every day. For our colleagues, a great place to work, an environment where everyone can thrive, where everyone is accountable for delivering their part of the transformation.
For our supplier partners and all partners we work with, deep, trusted relationships, building growth plans together where we all win. For our shareholders, satisfactory returns, giving you the confidence in our future by delivering and achieving our performance every day. Our investment case is the same as I outlined a few years ago, because we know we have a long-term growth opportunity, probably the best retail opportunity in this country. We have the U.K.'s most trusted brand and the distinct competitive advantage because there is only one M&S, and we are overwhelmingly own label. Everything is in our control. We design the product, create the product. The P&L is in every product we sell. We have a strong, experienced, dedicated leadership team committed to delivering this transformation. We do have some consistent operational and financial delivery, and a disciplined approach to capital allocation, and a strong balance sheet.
Thank you for coming. I am going to hand over to John.
Thanks, Stuart. Good morning, everyone. It is 18 months since I joined M&S, and probably quite a few of you are sitting here probably going, "Well, what has he done in the last 18 months at M&S?" I thought, first of all, let me just take you through that 18 months and what we have been doing. I started right at the start of the cyber incident, so I spent my first eight months stabilizing and restoring the business. Whilst recovering FH&B was my main focus, I took the opportunity to get around everywhere to probe and understand the business better. I used the opportunity to better understand our systems and our ways of working, whilst also getting to every DC and sourcing office overseas. I have spent time with all our major supplier partners on site and visited a significant number of our stores.
This gave me a great grounding in the business. I could see our clear strengths were product, but that, as Stuart had said to me, our operations were far behind where a modern omnichannel retailer needed to be. As the calendar year turned, I have been able to focus on getting my team in place. I am delighted with the team we have assembled. I firmly believe this is the best leadership team in retail. We have got a great blend of M&S talent and faces you are familiar with, Maddy, Mitch, Adam, Charlotte, and Sharry. We have recruited top talent from the external market to lead key parts of our operations and transformation. David James, supply chain, David Clark on online, Jon Rolls, commercial, and Jag Weatherley on transformation. We now have the right people with the right skills and experience to lead this business.
With the team in place by the start of the financial year, I have then been focused on setting out our strategy for fashion, home, and beauty, getting real clarity on what we need to do to modernize and transform. Now we have traded half one, it has further validated my initial observations. We gain share in a declining market.
Our product continues to resonate with customers, but our growth and margin were heavily constrained by our operations, highlighting our need to transform. We need better availability, stock flow, and product choice, and a greater ability to convert into profit. We have got immediate actions in place to improve these areas, but the bigger issue is structural. We have modernized our product offering, now we need to modernize our operating model at the same pace. My objective is to close that gap. Much is already in flight, now we need to accelerate.
What I want to present to you today is what I have been spending the last 12 months working on. It is my end-to-end transformation of our operations, and explain how it will drive growth and improve profitability. Whilst this is only my second CMD, I am mindful that many of you may have heard some of these messages previously. What is different this time is this is not a future plan in five years' time.
This strategy is alive and it is happening. We will talk to timelines throughout, and I will take you through at the end of the day what we will deliver in the next 18 months. To open our session, I am going to give a higher overview of our opportunities and our approach. What is our plan? We are creating an FH&B business fit for how our customers shop today and how they will shop in the future.
Customer patterns and shopping habits are changing. They expect an omnichannel experience, easy ordering, fast delivery, and a connected online and in-store journey. We have a clear mission, going from an M&S that customers have always lived with to one they cannot live without, and protecting the magic and modernizing the rest. Our customer proposition, win the core with style for everyone, lead on quality and value, and make M&S easy to shop across every channel. Our plan centers on three pillars: lead on product, accelerate omnichannel, and deliver operating margin. Let us start with leading on product. Product is the starting point for growth and the foundation of the M&S customer proposition. The focus is not simply more choice, it is the right products backed with conviction, available where and when customers want them. One of our guiding principles is that we are proud of our product.
Many retailers can offer style, quality, or value. M&S is distinctive because we combine all three at scale through a predominantly own-label model. That is the M&S magic. You will be familiar with the words Stuart used to summarize our transformation, "Protect the magic, modernize the rest." For fashion, home, and beauty, our product is our magic, and that we will protect. We have a strong base to build on. M&S is the most trusted brand, as stated by YouGov. We have market-leading perceptions. We are the market leader with number one market share in over 20 categories. That is unmatched by anyone else and is a key competitive advantage. You can see the power of the M&S brand, the most trusted brand in the U.K. according to YouGov, the most considered fashion retailer. We are number one most trusted fashion retailer and most improved fashion retailer overall.
Our quality, value, and style perception is not only number one, but continues to grow across all three metrics. We are the only retailer to grow versus last year across these metrics, and our lead is wider than it has ever been. These metrics are our strongest ever recorded. This is the magic we will protect. Our objective is to widen this gap further. Our focus will always be on delivering quality and value to our customers and creating style for everyone with true breadth of appeal. However, as Stuart has highlighted, there is so much more we need to do on value, particularly on womenswear and particularly for our younger customers. We have got immediate action in place with a strong value-focused campaign in January, but our actions go further than just the campaign. We are sharpening our opening price points and putting more volume behind key value lines.
We've made some progress already, which Maddy will bring to life a little bit later. We also know value is not just about price. We're also focused on how we deliver quality and style and versatility to drive value perception with our younger customer base, with clear communication of quality and versatility in-store and online. Availability is also critical to ensure younger customers can actually buy the value product they want. As an average, our younger customers are shopping smaller sizes. These have been selling out way too quickly. Another key reason we're increasing our mixes of sizes 6- 12, which again, Maddy will bring to life shortly. On market share, we're growing in a challenging market, and post-incident, our market share trajectory has continued to increase. We set an objective to grow our market share by 1% with the latest Kantar GRD update on the 11th of October.
We're now at 10.6% market share, which is 1.2 points ahead of October 2022. We're not congratulating ourselves for this. Let me be clear, the market is depressed. We're number one in gaining, but in a very bad market. There are only three of us winning, but we want to win quicker than the others. We're winning a bigger slice of a smaller cake. Our objective is not just to grow market share, it is to continue to grow top-line sales. Our plan for growth does not assume market recovery. The market is under pressure. The full-price market continues to decline. The current fashion market is down versus two years ago. Value can come through promotions in the first-hand market, but increasingly through resale platforms offering broad choice at lower prices. The growth of resale is structural, it's not temporary.
Barclays forecast online fashion resale to continue to grow at approximately 11% per annum. Our plan is therefore based on the assumption the market is not going to provide us with any help. The market is not going to drive our growth, but we will. Great product is the heart of our business. I've said it's the magic we will protect. The team will continue to lead work on product, pushing harder on quality, value, and winning the core through breadth of appeal. It is, though, modernizing the rest, upgrading our systems and process that are our biggest unlock to growth. This is where I will spend the core of my time, transforming our end-to-end operations. This is where it is down to us to unlock the opportunities for growth, and we have clear opportunities to capitalize on.
We're improving our stock flow and our channel performance, step changing our availability, which as Jag will show later, held us back in H1, but is much improving in H2, as well as opportunities to reduce our cost to sell and grow our operating profit. To lead on product, we have to transform how we design and create. Great product creates value only if we decide early, commit with confidence, and retain flexibility to respond to demand. Here, we have a significant opportunity. Our product operating model has not kept pace. We are using legacy systems across our teams that are holding back our potential. We have significant opportunity to back our hero lines in greater volume and make them available through one joined-up omnichannel journey. This is where we are now focused as we modernize the rest.
The job we are now doing is driving conversion, converting demand into availability, converting sales into full-price sales, converting channel growth into profit. This is the challenge our transformation will solve and will bring to life later today. Moving to accelerating omnichannel, our focus is how we serve customers seamlessly across stores and online, using the strength of both channels together. The objective is not online growth at any cost. It is profitable omnichannel growth, stronger customer economics, and an estate that supports the whole journey. We are transforming from a store-first retailer to a true omnichannel retailer. Our objective is to double online sales and at least 50% online participation. Our store estate has a crucial role to play in our plans and gives us a real advantage. For our stores, we have three key focuses: rotation, renewal, and reducing cost.
On rotation, we continue to rotate the estate with an objective of having 180 FH&B stores we are proud of. Getting to 180 does, of course, require some store closures, where a growth-enabling rotation action isn't available and a store has a low contribution. Lewisham is a good example of this. In many cases, we have been able to rotate our stores into stronger propositions to deliver growth, and again, Swindon is a good example of this. In Swindon, we closed a legacy town center store that had traded since 1931, but remained in decline, and we extended the Orbital Retail Park on the edge of town, growing FH&B by a further 10,000 sq ft, enabling us to trade in Swindon from one optimized location. Orbital's contribution, as a result, has improved from number 144 in FH&B to number 88, and we are projecting it will double its contribution.
Orbital is now on track to deliver a two-year payback. This is just one example of being able to optimize our FH&B store estate. Where we are staying in situ, we now have a clear pathway to renewing or refreshing our store estate. For our renewals, our Pantheon R&D store has shown us how amazing Fashion, Home, and Beauty store can be. It's given us real confidence in having a market-leading renewal format with some strong results. Total sales up 35%. M&S Women up 52%. M&S Women is now number one store is Pantheon on Oxford Street. We have 26% more FH&B customers and 33,000 completely new customers to FH&B. The customer is materially younger, 26% are under 35, and this compares to 13% in comparable stores. Research shows 62% have a more positive perception of value for money.
What we are seeing in Pantheon isn't just sales growth, it's attracting, recruiting new and younger customers while positively changing what they think about M&S. We are progressing this concept next into Cheshunt and Speke New Mersey, as we work through how we can deliver this concept at scale. We are conscious of the current market headwinds, and alongside our Pantheon format, have other approaches to update our stores to ensure we are capital efficient. In Epsom, we have tested a new lower capital model that delivers a store that we are aesthetically proud of without the full scope and cost of a full renewal. It's a lighter touch, requires significantly less investment, but keeps us best in town. In Orpington, we have developed a model focused on intensification. This has enabled us to drive more options, better grade, increasing sales overall. Unlocking greater productivity and return from our estate.
This suite of options will help us renew and refresh our estate in a disciplined way. On reducing store cost, productivity is key, given the market headwinds. It has become harder to offset the cost inflation from National Living Wage and National Insurance. We have got a number of actions in flight. Our end-to-end transformation is simplifying product flow and will unlock efficient savings.
Our new return center in Lichfield removes complex return processes and ISF pick in store. We are trialing new user cases on RFID, and Stuart has talked about Iris, a great tool that the stores now have, getting the right task to the right colleague first time. Moving on to online, we are continuing to see strong growth, and we now serve around 10 million active customers, with participation continuing to rise. There is huge growth potential. 18.5% of our customers shop both channels, and they represent 52% of our total sales.
Growing this customer base is a clear opportunity. Our store estate is an important advantage we can work harder for online growth too. The full line and food store estate gives us a network of over 1,000 stores. 2/3 of our customer who order online click and collect, but actually only a third of our customers, sorry, are aware that you can click and collect and return at a Simply Food store. What a great opportunity this is. Omnichannel is a major growth opportunity. We know how to unlock it, and David will share more later. But we are growing sales and volumes in our highest cost-to-serve channel. Online operates at a lower margin than stores. As online participation increases, the difference in channel economics becomes more important. We knew this. It is why our transformation is critical. Fulfillment and return costs are growing faster than sales.
This is diluting profitability. This is what we saw in our H1 results. You will have seen the H1 margin, as reported last week, at 7.5%, a 4.5% reduction versus FY 2025, primarily as a result of growing operating cost of 7% versus a sales decline of 1.7%. This was driven by inflation, increased fulfillment, and returns activity and investments, partially offset by structural cost savings. In H2, we expect an improved performance with profitability building back towards target. Our transformation presents a real opportunity to service our growth more profitably, and this is our objective. Critically, our transformation is already in flight. It is not all in the future, and our plan is to see margin improvement already in H2 this year. Brands will play an important role in online growth too, but as Stuart has said, we are a branded house, not a house of brands.
Own label remains our priority, but brands are a key revenue gap to some of our competitors, and we need to close that gap. We will continue our strategy of a curated range of brands that our customers want and complement our range across fashion, sports, beauty, and home. We are refining how we work with third-party brands to optimize our model and ensure growing through this channel is not margin dilutive. Our partnership with Sephora is a great example. It will enable us to bring an exciting brand to our website and 100 of our stores, attracting new customers, a different demographic, and giving a compelling reason to shop our stores. You can see some of the reaction to the news here.
It's like the world knew that women needed good news today, okay? Because what do you mean Sephora is launching in Marks & Spencer next year? You're telling me there could be a day that I could go into a Marks & Spencer, get a rotisserie chicken, get my cookies, toddle next door, pick up a nice new jacket or like outfit for the weekend, and then shop Sephora and get like a whole new, or like some new makeup-y bits. It's better than therapy. Are you having a laugh? This is genuinely huge. This is amazing. Together, Sephora and M&S are creating the ultimate new beauty destination, bringing thousands of products. Oh my gosh. Suddenly, there's a light at the end of the tunnel.
Thank you, Marks & Spencer and Sephora, my two favorite destinations, like my two favorite worlds colliding, for just providing us with a glimmer of hope that next year will be amazing.
We're really excited about Sephora also. It will be a game-changer for us, not just in beauty, but in attracting new customers to our fashion and home offer also. In our business case, we have made no halo assumptions for our other business units, so this will be upside to our plan. James, our Head of Beauty, is leading the partnership. It's an exciting moment for us to capitalize on. Let's move to how we convert proposition and channel growth into sustainable profitability. Our vision requires joining the business end-to-end. Each activity contributes to margin, but the full value comes when they operate as one system. This means connecting product planning with sourcing, movement, and selling, so decisions at one stage improve delivery at the next. The benefits will flow right across the P&L. Better availability drives more full-price sales. Lower cost of goods and less stock reduces markdown.
Efficient operations, lower cost to serve. To unlock these benefits and realize sustained operating margin improvement, we are clear on the growth levers that require action in our end-to-end transformation. They sit within four areas in our plan: product operations, sourcing, supply chain, and online. In product operations, historically, we've operated with disconnected systems, which require manual intervention to reconcile and create a long and cumbersome critical path, which leaves money on the table in terms of availability, full-price sales, and margin. Over the next two years, we are transforming our planning systems to create one connected flow of data through the product life cycle, and we are adopting a consistent three-lane critical path, which will allow us to respond quickly and efficiently to changes in the market.
This will take a current 56-week single process and break it down into an average of 34 weeks across three lanes for each relevant product, all shorter and sharper than we have today. Importantly, what we are doing here is not rocket science. It is moving the way we operate as a business just to benchmark levels, and we are already well underway. Jag, Maddy, and Mitch will take you through this in detail later. In sourcing, we are turning our scale into better margins.
Today, we have enormous scale, but we have not always used it as one business. Historically, our commitments to supplier partners can be late, capacity is not planned in advance, and stores, online, and international are not joined up early enough in the process. The answer is deeper, longer-term partnerships, one view of demand and capacity, and better use of partner capability. That is exactly what we are doing.
We are committing confidently where demand is predictable and retaining speed and flexibility where it is not. We are also designing pre-retailing around channel and destination from the outset, rather than adding it in later. The result will be lower cost of goods, less stockholding, lead times, greater flexibility, and better margin. I will bring this to life later. End-to-end supply chain. Once the right product is bought, it must move simply and efficiently. To date, the journey has been too complex, with products not always logistics-ready. Stock moves unnecessarily between DCs, while allocation and replenishment does not always put it in the right place first time. Every extra touch adds time, cost, and risk, and weakens availability. We are redesigning flow end-to-end, investing in automation, making products logistics-ready at source, and creating a clear stock view from supplier partner right through to customer.
Returns will be simplified, so stock re-enters the system faster and at a much lower cost. For the customer, this will improve service, availability, and conversion, while structurally lowering cost to serve for M&S. This is not a future plan. This transformation is happening now. I will go into this also in more detail later. Online, we are creating more valuable relationships and making it easier to shop. Today, the customer experience is not personalized enough. Delivery and returns need to be more competitive to meet modern expectations. We are improving marketing effectiveness, making shopping easier and more relevant, and creating more reasons to shop with us. Tighter assortment discipline will ensure every part of the range strengthens the offer and earns its place. The objective is greater frequency, stronger retention, increased omnichannel sales. David will go into this in more detail in his presentation later.
Product operations, sourcing, supply chain, and online are the four levers to turn demand into sustained margins. As I have said, the challenges and opportunities are not new. What is different this time is that it is not all five years away. What the team and I will take you through today is what is live and happening and what will actually land in the next 18 months. We will unpack these four growth levers in more detail, and I will share with you at the end what will be delivered in the next 18 months. Let us take a look at what the future customer and operating model will look like, how product is planned, sourced, moved, sold, and returned as a result of delivering our end-to-end transformation.
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You can see our vision. An improved online platform is creating more valuable relationships with a better proposition and a seamless omni-channel experience. The new shorter, sharper critical path provided clarity and pace. The story of the jacket started 32 weeks ago. Previously, that would have been 57 weeks. Our new planning tools are automating planning, and our sourcing is enhanced by connected systems, enabling pace and clarity, creating better products, improved availability, and turning scale into better margins. Our end-to-end supply chain is delivering product faster and simpler with fewer touch points, landing the right product in the right place faster and at a lower cost. Our end-to-end transformation is live and in progress and will deliver significant progress in the next 18 months. Much of the delivery against our objective is in our own hands. Our plan is designed to deliver without relying on market recovery.
It does rely on disciplined execution across every lever, which is not easy to do. It also requires a significant level of cultural change, but I'm confident we have a strong team in place that will deliver this transformation. Delivery of our plan will see us realize significant opportunity to build on where we are today and hit our medium-term financial objectives, which are low to middle single-digit growth based on a flat market. The market is tough, but with the opportunities I've outlined, we're confident we have headroom to grow. Target more than 1% market share growth. Stuart set out in his first CMD the aim to grow market share by more than 1% when he became Chief Executive. We've now hit this plan, but the market is so challenged. We see more opportunity to go after. Our plan is to grow faster than the market.
Double online growth to at least 50% FH&B participation, which we think will require an annual growth rate of between 5% and 10% per year. Stable store sales supported by the rotation program. Deliver sustainable operating margin above 10% with a clear pathway for online margin to become at least comparable with stores. As the channel margin gap closes, online growth becomes progressively less dilutive, and ultimately, channel shift creates value. To start that off, we're going to deep dive into product operations, and to do that, we've got Jag, Maddy, and Mitch.
Hi, everyone. I'm Jag Weatherley, and I joined M&S at the start of this year to support our fashion, home, and beauty transformation. As John outlined earlier, product operations, resetting our sourcing, accelerating omnichannel, and transforming our supply chain operations all come together to form our end-to-end transformation. Since I started, I've been focusing in on resetting our product operations with a real lens over our workflows, data, and processes. At M&S, the transformation had started before I joined. Our product has gone from strength to strength, and we introduced o9, our planning platform, to support our merchandisers from planning through to allocation and replenishment. The focus, as you've heard already today, has really been heavily in on our product.
Our product, the perception, the style, the value, the focus now is not only on our product, but how we bring that product to life, that backbone that Stuart referred to earlier, the transformation of our operations behind. We're investing in technology, simpler workflows to transform how we bring that product to life. The goal is exactly the same, the right product in the right place at the right time across every channel and market globally. We're refreshing our toolkit. That's not only going to support demand forecasting and how we optimize our stock, which will help us increase our availability, increase our full price sales, reduce our markdown, and continue to grow market share, but it's also going to focus on bringing our design to life all the way through to our customer. Our future vision. Our future vision is one connected life cycle.
Fashion begins with a trend. That trend inspires a design, and at the heart of our transformation is how we bring that design to life for our customers as quickly, efficiently, and profitably as possible. The key is a set of connected systems. These form and complement our fashion workflow. The unlock that you get from connected systems with clean data going in from source is the ability to be able to automate, take out cumbersome processes, and unlock end-to-end visibility. That last one is absolutely critical. It's something we are lacking today. At M&S today, in reality, we're using multiple processes, multiple tools, without that visibility to bring the fantastic product we have to life. In the future, we're going to be connecting and automating what we're planning at the outset of the season to what our customer can then buy in-store and online globally.
How is it different from where we are today? Today, merchandising, design, sourcing, buying, they are all using separate systems, supplemented by Excels, supplemented by plaster workflows. We are reconciling data at each point to try and get it to flow through in our disconnected system. This is impacting our profitability, it is impacting our availability, and it is making trading and reporting really hard. Earlier, John referenced that our availability is not where it should be. In H1 this year, our availability hit an all-time low of 81%. There are two major reasons for that. One, our lead time, far too long. Mitch is going to bring to life for you how we are evolving our critical path process to fundamentally speed up our lead time. Our new technology is going to support that acceleration.
Second, the incident took away the tools and the processes that we have to build our ranges. We are reliant on quite a few manual tools, and as Stuart said earlier, we are taking out a lot of our legacy tools. We had too many to bring back up to support our processes, so that simplification is key. Our merchandisers, they are planning their seasonal strategies, their ranges in Excel today, inconsistently. Spreadsheets that have been customized over time, taking away the standardization that we need to be able to automate. Our designers, they are designing by hand in Adobe through our digital toolkit. Hopefully some of you were able to see the demo upstairs of our digital toolkit. It is still great, but it is in isolation, not connected. Too often, we are still reliant on a physical mock shop to review our ranges and design.
Our buyers are working with our designers, our merchandisers, our supplier partners, our sourcing offices, and they are bringing these ranges to life through inconsistent communication channels and inconsistent processes. This gives us a patchwork of a product life cycle that is not really fit for where we want to be, and it makes our reporting, analysis, and trading really hard. Let me bring this to life for you with an example, and this is a worst-case example. Getting our cost price wrong. At the outset of a season, our buyers, our sourcing offices are working with our suppliers to secure fabric, secure production capacity. We are then drawing down on this. The information is held in isolated Excel trackers. If we do not update the tracker, we have lost visibility of what we are doing.
We are then using several processes, emails, phone calls, face-to-face, to communicate the information that needs to get through to our buyers' admins. They are the guys who are actually creating our purchase order. If we do not communicate effectively through, we have lost track of what our cost price should be. What is the impact? First off, we have lost all of that gain that we should have got from negotiating at the start of the season.
Secondly, whatever we put into our purchase order at the start impacts the entire M&S workflow. That product leaves our supplier, goes to the port. It cannot move because the supplier's documentation does not match the M&S documentation. That requires manual intervention, time, and cost to resolve. It eventually moves into our workflow. We take receipt of the goods. We need to release payment. Again, we cannot, because the invoice does not match our system.
Manual intervention, time, and cost. We have to get the information right at the start, because that forms the backbone of the data that flows throughout M&S. John said this earlier, our plan is not an aspiration, it is a reality. We are introducing three platforms that are going to complement our workflow and unlock that clean source of data. That is the gold. Three core systems, planning platform. Planning platform we went live with 12 months ago now. It was a bit later than planned. The incident did slow us down. But today, every merchandiser is using the planning platform to plan their season at the start and their weekly sales. We are accelerating the technology rollout, and we will be complete within the next six months. That is going to take our plans through to allocation globally.
Planning platform strengthens that commercial acumen, but our designers need a toolkit too. We are going to be capturing information from design stage. Our digital product creation toolkit not only speeds up our collaboration with our suppliers, reduces our costs, but also reduces the reliance on a physical sample. Today, we could be sampling up to 12 samples per garment per product. An average cost of GBP 250 per sample. That is a significant cost. We will be halving this. Then our PLM, our product lifecycle management tool, that becomes our central hub. Our merchandisers are going to plan in planning platform. Our designers, buyers, and sourcing teams will be creating products through digital product creation. This will all feed into our product lifecycle management tool, clean data straight in. Within that tool, our buyers, sourcing officers, and suppliers will be bringing the product to life.
Essentially, we are going to be capturing the information from source that goes into that purchase order, and we will be automating the creation of the purchase order into our backend systems. No duplication, no double tapping. Our current product lifecycle management tool is part of our legacy toolkit, so it is not part of the journey for us going forward. We are currently replacing this tool now. When does it all come together? Assortment planning within planning platform is being rolled out right now. Demand forecasting and allocation and replenishment follow early next year, and we will have a full adoption plan throughout 2027. We are then onboarding our international markets and our brands. Within DPC, we have had a fantastic adoption within the M&S Man team. The M&S Man team are now fully using the digital toolkit to complete all of their sign-offs.
We are onboarding all of the other units right now, and we will be complete within 24 months. Our procurement process for our PLM tool has now completed. We are signing contracts. We will be going live with the new solution next year. The magic really happens in 18 months time when, with John's support and his team's support, we are going to be bringing the whole piece together and integrating that flow of data through from plan to range creation. I am now going to hand over to Mitch, who is going to bring to life the processes that we are changing.
Thanks, Jag. Good morning, everyone. I am Mitch Hughes. I am the Director here at M&S Man. I have been back in the business for almost four years, and as Jag said, and as we heard this morning, our product has moved on with our brand, but our systems have not kept pace. They are now holding us back. Maddy and I are here today not just to deliver great product for our customers, but we are also here to help this transformation of our systems, because as we know, and as we have heard from Stuart and John so far, it is pointless having one without the other. Systems and data provide our foundation, but this is ultimately about changing how we work to deliver a better customer experience by channel more efficiently. Let me introduce our new three-speed process.
We are creating a simple, consistent, disciplined end-to-end process, to enable us to make our faster, better-informed decisions, respond effectively to emerging trends, reduce rework across seasons, and give our teams greater focus. Importantly, this should also increase our margins, buying closer to demand and close to the season, less markdown, more full-price sales, and better stock productivity. This more responsive way of working gets the right product into the right market at the right time, improving availability, efficiency, sales, and also market share. Historically, we had one process for all product types. It gave us certainty, obviously, with our time of our product, but also forced documents too early. By the time the teams had actually had customer and trading insights, too many decisions were actually made. Teams juggled multiple seasons, causing chaos and a bit of rework.
As an example, we raised over 250,000 purchase orders per year, and we were changing these three to four times. This is over 1 million changes for our teams and our supply base, making us difficult and costly to work with. I am pleased to say we have now adopted a three-speed approach, as you can see here, to our planning and our buying and our selling of product. Our continuity, seasonal, and fast lanes apply the right model to the right product. Our average kickoff time has fallen from 57 weeks, as John said, to 34. To put it another way, we were placing our bets a year out, which clearly is high risk. All business units now work to these shared milestones, giving us and our suppliers visibility we have truly never had before, to track progress, to spot issues, and act quicker.
This is not about making everything faster. This is about making better-informed decisions. I am pleased to say, as we have said, we are not hanging around here. Since May, we have taken 13 weeks from the seasonal lane, reducing it to a maximum of 44 weeks. 44 is not our end goal. Over the next two years, our plan is to bring it down to 32 weeks, much closer to other leading global retailers. We are starting later, using mirror season data for our teams.
Customer and trend insights are fed in. As an example, this week, after this event, we are actually all signing off July and August for next year. We have got more time to build in a data-led strategy, giving our teams and our suppliers one clear plan from the outset. With continuity now locked down, our teams can truly focus on newness for our customer.
As you have seen upstairs, and as Jag had mentioned, the digital touchpoints now replace a physical mock shop. Sign-offs confirm decisions rather than a big grand reveal. Far less surprises for us and far less surprises for our suppliers and our teams. We have also removed unnecessary buffer from our logistics and also our production. Do not just take it from me. Let us hear from our colleagues, and a couple were upstairs, but let us hear from a few more, from our buying, our merchandising, and our styling teams on what these changes have truly made for them.
The previous critical path and process was very slow. If I wanted to see a sample quite quickly, it would not have been able to do that. It would take about four to five weeks in order to see something.
It was far too long, so it meant we had a lot of change as we got new trend and trade information.
We would be talking about the strategy way ahead of the mirror season, so lots of the decisions were made at that point that then, by the time we came to plan it, were not relevant anymore.
You weren't able to react to something that you saw quickly, whether it be a trend or it be from sale.
We had to redo things again and again.
We would have a sign-off, but I wouldn't say we were always working towards the most prepared version of what that should be.
We used to tend to work in silos, so everyone did their own thing. It was really difficult as a business to get one best way of working.
The new critical path has really unlocked for us how we buy our continuity lines. We now agree them at the start of the super season, and throughout the planning phase, we are rebooking them as and when we need to, rather than having them signed off at every single meeting again.
We do things a lot closer to the season that we are buying, so we are able to get things right the first time.
It means there is less changes further down the line, which is all because of the time that we have to spend planning upfront.
We can really see things a lot quicker, and put things into work when we actually can see the trend and spot it out there on the market.
I'm excited that we can keep making the workload for teams better, which means we can be more reactive and get even better product to our customers.
I think it's got so much more that it can give us in terms of empowerment to teams, ownership and planning at the beginning of a season, and less meetings that require lots of preparation work. There's always more to do, and we'll continue to evolve and make this even better, but the initial signs are we're on the right track.
You heard from the team. There's three lanes which I'm going to talk about now. Our continuity lane. Our continuity covers products our customers truly rely on. White T-shirts, core denim, everyday essentials. This continuity product is worth 49% of our full price sales and should clearly never be out of stock, with availability over 90%. This is where we make our highest margin. The mix varies though by BU. Men's are at 55%, women's are at 23%, and lingerie are highest at 65%. Lead times here around 30 weeks. However, once in flight, this now reduces to six weeks for replenishment. Clearly, the model will be highly forecast-driven, securing availability to our customers far more than ever before. Don't forget, consolidating global demand and committing earlier will unlock scale, strengthen purchasing power, lower our cost prices, and improve margin.
The men's Autograph T-shirt is a great example of this, as I've got on today. A staple, clearly, I might be biased, in any man's wardrobe. A third of our customers come back for this T-shirt every year, and we will sell over half a million across three core colors. This is almost one every single minute. We've increased our stock cover, and availability has now reached over 90%. Across the full program, with all this scale, we've now actually improved our margin by 3.5 percentage points for spring 2027. Our seasonal lane also remains very important to us. 43% of our full price sales mix come from our seasonal lane, with a target of 90%. Lead times here go from 32 to 44, depending on product type, whether it's a new color in a T-shirt or a new dress.
However, as I said earlier, our ambition is to bring this down to 32 weeks once this becomes the [inaudible] example of this might be our linen shirts on M&S Man. We have now delivered these in 32 weeks. We sold over 400,000 singles to customers in this first half alone. However, as we all know, a hot summer meant poor availability as we hit July and August. As Stuart mentioned earlier, it just was not good enough. So what have we done? We have invested in lowering our options by 26%, and we increased our depth of buy on our core white and navy to 80%, securing that availability. Also, we have set up seasonal lane to trade with our suppliers. New fabrics, new colors, new fits are also available throughout the year. Finally, our third lane, our fast lane, 8% of our full price sales.
This takes our product from concept to customer in around nine weeks. Traditionally, this was 16 weeks. We are still going to deliver great availability at 95% because we buy to sell through, so the first four weeks will be measured. It lets us respond to trends, chase in-season demand. These are opportunities we would have previously missed. What we are not going to do is devalue our M&S quality, so we will protect this. M&S Women have led the way on fast lane at 22% of our full price sales mix, a significant move from last year. The M&S Women Love That Drop, as you can see, a 30-piece trend-led collection delivered in 9-12 weeks.
57% of our customers are under 55 in this category, showing that greater speed and relevance can also attract a younger customer, with almost 4 million organic social views as well, generating huge brand buzz. Pre-booked fabric and capacity, in-season decision-making, faster legal and IP checks really helped deliver this pace while also managing our risk. Fast lane is not just about sourcing closer to home. Speed is designed from the outset, whether it is in the Far East or also near shore. To summarize our three-speed lane process, it fundamentally changes how our fashion business will operate going forward and sets us up to be systemic and also more sustainable for growth. For me and for Maddy and for all of us here, this is not just about delivering great product.
It is about transforming how we operate behind the scenes so the right product reaches the right market at the right time. Now I am going to hand over to Maddy to show us what this truly means for our customers.
Thank you, Mitch. Hi, everyone. I am Maddy, Director of M&S Women. Very pleased to be with you here today. Jag and Mitch have shown you how improving our systems, our processes, and all of our discipline, I really want to finish with what that means for the customer and for womenswear. Over the past five years, we have transformed our product by really listening to all of our customers. They told us we were frumpy and old-fashioned, and what they really wanted was wearable, relevant trends without losing that famous full quality and style we have at M&S. We changed our product and how we spoke to our customers to widen that audience and really shift those perceptions. We got sharper on style, and we delivered more newness. We invested in design intelligence, and we held back budget to trade in season.
We co-created product with some of our best design-led suppliers, and our Love That Drop that Mitch talked to earlier is a really good example of that. We made style more inspirational to shop. We coordinated outfitting right at the front of our stores to present trends in a see it, like it, buy it format. We changed how people see us. We teamed up with British style icons, Sienna Miller, Bella Freud, and fashion-forward brands like Reiss very recently. This September, M&S showed on schedule at London Fashion Week for the very first time, and this was only made possible by the progress we have made on style over the years. We also did this without compromising on value, increasing our options under GBP 30.
A really good example to bring this to life is on knitwear and denim, where we lead in the market, and 60% of our autumn/winter ranges are GBP 30 and under. What was the result of this? We are now leading the market on both value and quality. We are at number two on style in womenswear, which is exactly where we want to be. We are growing market share, attracting a younger customer and influencers, as well as the fashion press. Great product and stronger perceptions can only take us so far. We have not had the right systems, supply chain, or sourcing to fully meet all of our customer needs. In the first half, we really learned some lessons, and each one of those is exactly what this new model is designed to fix. Firstly, range balance.
In five years, we have almost doubled our share with the under-35s, driven by trend product. Sometimes that has come at the expense of that easy everyday product that our core and our older customer really wants. That was a product call, and we have learned from that. We have taken action to rebalance our ranges as we move into winter, and then beyond that into the year ahead. The product lifecycle system that both Mitch and Jag have talked about will give us a clearer view as those ranges build, so we can intervene earlier. Secondly, the right stock in the right sizes. The right product is no use if she cannot find her size. In fact, it is incredibly frustrating, as we know. In the first half, our sizing was off, particularly in our smaller ones.
We have made significant investment in those smaller sizes over the last four years, but our younger customers move faster than we did. We have since then cut our options, invested deeper into those key lines, and reset all of our size ratios. Better demand forecasting that now goes right down to size level will really help the teams even more. Third, reacting faster. The market, the weather, our customers are responding incredibly and changing quickly. The old ways of working just couldn't keep up with that. The new product development lifecycle brings decisions closer to the season, improving our view of demand and therefore our ability to be able to respond to that. We are not going to call everything absolutely perfectly, but we will see changes earlier, and therefore we can act faster. Fourth, better-informed decisions.
Information has been scattered across separate tools, spreadsheets, making stock, range, and trading much harder than it should be for our teams. Giving the teams that end-to-end visibility with better information, better guardrails, is going to make them easier for them to make better decisions. What are the benefits we are going to see from this work? Four things. Firstly, better availability. Over 90% in the most important continuity products, in the right sizes, in the right places. More full-price sales, ranges that work for all of our customer profiles, landing closer to the season with a faster development lifecycle. Then lower markdowns. Fewer earlier decisions, so we can be more flexible and respond to that demand. With the 50% reduction in that workload Mitch described, gives teams more time to plan and develop the most relevant ranges for our customers.
Stretching our lead on style, value, and quality. We are in a very strong position, but there is still an awful lot of work to do, as you have heard from all of the team, especially on sharpening that value, which is a major focus for us as we move into next year. In summary, we have learned an awful lot from the first half. We are really clear on the changes that we are going to need to make, and between us, we are fully committed to driving that change across the whole of the business. Thank you.
Thanks, Maddy, Jag, and Mitch. We are going to move on now to sourcing in the next part. In the past 18 months, I have spent time with sourcing offices, supplier partners, factories, and product teams, and what I have seen is very, very encouraging. We have real scale, some of the best supplier partners in the industry, and partners deeply committed to M&S. The product capability is here, and so are the relationships, which we have been working hard to continue to build on. This is why they are our supplier partners, not our suppliers. But we are not yet getting the full benefit of these strengths and the relationships that we have. Jane is now in role and is already making great headway leading this transformation, informed by her excellent background with over 30 years in the industry, 20 of which are with a certain competitor.
As Jane has only been here three months, I didn't think it was fair to put her on stage today. I thought it was only right that I would actually cover this through. In terms of what we're doing on sourcing, we have a very, very strong sourcing base to build from. We source more than 230 million units, rising to 270 million when we include our international business, and that's across 25 sourcing countries, giving us huge scale. The geographic mix gives us a broad sourcing platform. Around 55% of our volume comes from our mid-shore, 34% from our far shore, and 11% from our near shore. We've already become much more focused on taking this volume and simplifying how we work today. We've simplified the supply base with clothing supplier partners, numbers reducing from 218 partners in 2018 down to 128 partners today.
This has driven volume into a smaller number of supplier partners, delivering margin benefits. The combination of scale, geographic reach, and a more focused supply base creates a strong platform. To bring to life the value in our consolidation actions to date, today, our top 50 suppliers account for 72% of our sourcing volume. That concentration gives us meaningful leverage. Over the last three years, a 30% reduction in overall supplier partner numbers and an increased average spend per partner has helped deliver GBP 75 million in cost savings. These savings have helped us absorb the inflation over this period and enabled us to keep margin broadly flat. This gives us the confidence we can push further to unlock more margin benefits. One of the biggest things we are doing is listening to our supplier partners.
We thought we'd share with you some of the key opportunities our partners are telling us today. First, we're going to hear from Jeanette, who works in our Hong Kong sourcing office.
Okay. From my opinion, working in M&S, in order to make our lingerie product even more the best in class in terms of design, quality, fit, we should always engage our top quality of the manufacturer into even more upstream process. What I mean by upstream process, even though M&S is like to take the ownership of the design, but the supplier engaging in terms of from a designing starting point in order to factor in all their skill, to telling us all their expertise we should be making this bra or this construction even more better in terms of price engineering, fit, quality, and comfy. That will even push our quality even better. At the moment, we are doing good. We take the ownership from our expertise in the U.K., but in lingerie business, we still got a massive lingerie expertise in the factory.
We should be able to bring them into the upstream process to add more value onto our product development.
Next, we are going to hear from Pali from Ambiture, who works across Bangladesh and Sri Lanka, a co-create supplier partner on men's and women's wovens.
I would say it is about how we can bring product faster to the market. The whole apparel industry is changing and evolving at a very fast pace. For M&S, it is time for them to keep pace with the market industry. For us too, what we can bring on the table is that how fast that we can bring product with the latest innovation, be on the trend, and also how we can use technologies to its fully optimized way, and that can add value. I would say the customer right now is kind of, will respond well to what they need versus what we are currently working upon is the fact that we are working more on a push model versus a pull model.
When I say push model, what I meant by saying push is that what we think is right, the customer will accept, versus what the market and trend is kind of guiding us. That will be the differentiating factor between M&S, what M&S today and what M&S will be for tomorrow.
Then finally, let's hear from Sandamal from Hirdaramani, who works again in Bangladesh and Sri Lanka across denim and casual wear.
Even though we pay for the fabric, suppliers don't listen to us. So allow us to do the negotiation. Allow us what you need. On the pillar prices, let us know this is your target, this is your price you need. We'll come to you with solution, just like we just put on like GBP 3 million worth of saving on the table, the same thing. Just let us What you're asking is let us know what you need.
Our suppliers' feedback is very, very consistent. They value M&S and our relationship. They want to grow with us, but they can see opportunity to move faster and more simply. It's clear we can be difficult to work with, but most of the solutions are within our control. This gives us clear sight to three connected actions we're already underway with taking. First, leverage supplier partner capability. We're giving our strongest partners clearer roles, greater visibility, and confidence to invest in product, people, tech, and capacity. Second, respond faster to demand. We're aligning the sourcing route to the new critical path and moving more decisions closer to source. Third, we're improving our decision-making. We're simplifying how we work. Historically, too much has come back to Waterside for approval. We're establishing one reliable view now of the product and giving the teams closest to partners accountability to act.
Together, these moves create a sourcing model that can scale without adding complexity and will unlock new opportunities. Denim is a great example of where we're leveraging our partners' capabilities and scale. You've heard Sandamal at Hirdaramani, a global expert working with leading global brands. Previously, we negotiated denim fabric directly with overseas mills from here in Waterside. Our volumes versus our partners are small in comparison. They have significantly larger purchasing scale. They are also closer to the mills, material market, and latest pricing. The partner can source and negotiate materials more effective than us acting alone. Our supplier partner said, "Give us the target and let us deliver the solution." So that's what we're doing. This is not about compromising quality. The partner already meets global brand requirements.
This is a change in ways of working, using existing partner capability more effectively, accessing better material costs, stronger product, giving improved margin. Our scale is also a significant opportunity. Fabric is where the commercial opportunity becomes especially significant. It represents more than half the cost of a garment and more in basic products. We buy an estimated 200 million meters of fabrics per year, yet similar fabrics can still be developed and purchased separately across categories, partners, and mills. That fragmentation limits competition, duplicates development, and prevents us from fully benefiting from the M&S scale. Going forward, we are managing fabric as a portfolio, defining core fabric families, aggregating appropriate demand across channels, concentrating volume with strategic mills, and creating genuine competition. This approach, along with engaging and enabling our supplier partners to use their local expertise and network, will unlock both margin but also speed.
This is also where operating as one business with one critical path, including international, will enable us to unlock volume benefits that we do not get today. The fabric opportunity comes from three levers: consolidation, fabric engineering, and open costing. Taken together, these point to an indicative opportunity of around 3%-5% on the cost of product. Historically, we have been too siloed in our approach to sourcing, and this is a key change that we are making. As you have heard from Mitch, linen is a clear example of fragmented buying. Historically, we have bought men's and women's linen separately, so fabric demand is split across teams and markets. Moving forward, we are aggregating volumes into a larger fabric commitment by buying all of our linen across BUs together. The larger volume gives us greater leverage with partners and mills.
The scale is realized even more when we extend it across our U.K. and our international business. The great thing is, this is an opportunity that is directly within our control. Consolidation brings similar demand together, again unlocking the benefits of scale. Improving fabric engineering improves specification and construction. Open costing provides transparency and stronger commercial challenge. That value creates strategic choice. It gives the team the flexibility, firstly, to reinvest in product, quality, and price, or to improve margin. We have listened to our partners and are clear on the pain points, and we are well on track with the changes we need to make. The next step is moving much quicker, responding faster to demand. As you heard from Mitch, we are doing this now with the introduction of our new critical path that recognizes different products need differing sourcing routes, rather than one process fits everything.
Continuity needs scale, repeatability, and capacity secured early. Demand for continuity product is much more predictable. We will use that certainty to secure the right fabric, supplier partner, and cost. Seasonal product needs a different commitment model. Continuing with linen as an example, we can reserve fabric and factory capacity early while leaving style, color, size, and quantity decisions until the demand is much clearer. Fast product needs a genuinely faster route with fewer touchpoints, quicker approvals, and more decisions made by the teams closest to the supplier partner. The sourcing model we are moving to, therefore, combines early commitment where we have certainty with flexibility and speed where demand is less predictable. Returning to denim, it is a good example of what our deliberate supplier partner architecture looks like in practice. Over five years, we have reduced the denim supply base from nine partners to six.
The point is not just fewer partners, but that each partner has a clear role within the product strategy. Two strategic partners in Pakistan provide scale, design capability, and innovation. Two partners in Bangladesh provide capacity, volume, and resilience. Two partners in Egypt provide a nearshore route for faster delivery. This is a deliberate supplier partner architecture across our denim supply base that is built around our product strategy with three lanes, including our fast lane, to enable us to operate with greater pace. By having clearer, more dependable volumes, we allow partners to invest in people, technology, and capacity for M&S, improving development continuity and productivity. Our strongest partners, too, can support more than one route where they have the opportunity and capability to do that.
We heard from our partners that they need simpler, faster ways of working with us to increase the speed to market, and we're doing that. We're clear, in the past, too many bottlenecks sit within the M&S ways of working. Product ideas, costs, specifications, samples, and orders move through different systems, spreadsheets, and conversations. That's why we're making the changes now that will be live in 12 months to move to one connected process. Teams sharing the idea and agreeing the cost in one place. Agreed product details flowing into the order and development happening with the partner against one shared set of information, with confirmation sent automatically. Improved technology is important, but the system is not only going to fix this. The bigger change is internal team accountability and strict adherence to the new critical path.
On accountability, with Jane in role, we now have crystal clear accountabilities between Jane and the BU directors to make fast, effective sourcing decisions. U.K. teams continue to own the customer proposition, product architecture, design direction, initial fit, and standards. Sourcing offices and capable partners now own more routine development, pre-production, and production decisions with clear boundaries. Digital product creation adoption supports that shift with less physical sampling, better quality of information upfront, and allows objective approvals to happen closer to the source. We're taking action to have fewer fit rounds, better specification accuracy, and a critical path that moves because decisions are made when and where they're needed. As I said, the change is happening now. We will be live in 12 months and embedded within 18. So what does the sourcing transformation add up to?
First, lower cost of goods by using M&S scale more effectively across supplier partners, materials, and fabric. Second, lower stockholding by securing fabric and capacity early while keeping later product decisions open until we have clear demand signals. Third, increase speed to market through simpler processes, faster decisions, and more accountability closer to source. The combined outcome is a simpler, more responsive sourcing model that supports stronger margins, better availability, and growth. The scale and capability already exist to deliver this. The value comes from joining them up. Making these changes will enable both our growth and margin targets. They unlock benefits that give us choices where to reinvest or to play through to our margin directly. We're going to move on and talk a little bit now about supply chain and logistics. You've heard how we're changing product operations and using our sourcing scale more effectively.
The next question is, what happens after we have designed, bought, and sourced the right products? Our supply chain has to support a business that is growing online, serving stores and customers through one connected network. The opportunity is not just to add capacity. It is to redesign how we flow products through the business so that growth is easier and, more importantly, less expensive to serve. In total, our logistics cost to serve is 14.3%, and our target is to lower this by around 2%. The execution of our plan will happen over the next 18 months, with the benefits to follow in the P&L in the medium term. Our biggest opportunity is to unlock our online cost to serve within this, which you heard me say last year runs at 22% end-to-end, with 19% in logistics alone.
I know you have heard these challenges before, but as I said in my opening, the difference this time is we are really getting into the guts of supply chain, and we are already underway with our actions to fix it. Our supply chain and logistics transformation is live now, not in the future. The actions I am going to talk through will be live in the next 18 months, led by David, who you have hopefully met in the break and can take more questions later. I am going to take you through a bit of detail, but the opportunity is very, very straightforward. First, we are building a better customer experience, greater availability, a clearer delivery promise, and faster returns back into stock. Second, we are improving stock flow, fewer unnecessary movements, and more product in the right place at the right time.
Third, we are reducing the cost to serve, more automation, fewer touches, and less reliance on expensive manual routes. These three outcomes are connected. Better flow improves service and removes cost at the same time. We started with a network designed primarily for stores. As e-commerce grew, the network evolved to support increasing online demand. Castle Donington was designed to serve both retail and online, with a greater weighting towards retail, while online fulfillment was subsequently added to Bradford. Additional capacity was added through sites such as Thorncliffe and Sherburn, alongside Ollerton for returns and bulky home products. That allowed us to support, but it did not create the simplest end-to-end flow. The result is complexity and fragmentation, which is not always visible to the customer, but is visible in service, stock availability, and more importantly, cost. That complexity creates substantial movement between distribution centers.
Stock can move through a retail DC, move again to an e-commerce site, and returns then travel back through a separate route. In total, we move 188 million singles between DCs, adding over GBP 14 million of unnecessary annual transport. On top of this, split shipments add a further GBP 15 million to delivery costs. These GBP 29 million annual opportunities are just some of the costs we can unlock within the medium term, giving us opportunities to decide to reinvest or flow back to margin. This is just not a transport issue. Long journeys add handling costs, delays, and more opportunities for stock to be in the wrong place. We are therefore creating a simpler network with stock positioned closer to demand and fewer movements before it reaches the customer. Online demand has grown faster than our automated fulfillment capacity.
This year at peak, total singles demand reaches 3.3 million units in a week, up 10%, while automated capacity is flat at 2.2 million singles. Incremental volume is pushed into manual distribution centers and into in-store fulfillment, rising from about 800,000 units to over 1 million units per week at peak. This means a third of our volume goes through an inefficient route. This is not just at peak. Our average week is 2.4 million units, which means we need to use our manual capacity every week of the year. While these options protect capacity, they are slower and more expensive, and they make the delivery proposition harder to sustain. We always knew that without our program of change, driving online too quickly will add cost. That is what we have seen in the H1 results.
What we are doing in improving capacity and mix, more volume is going to flow through automated lower-cost routes. We know what good looks like. Going to give you an example here of how we operate in our Bradford DC, which is efficient, but is very small online. It only does about 10% of our online orders. This Bradford journey shows one of our most effective routes and shows how cost still builds in moving one single from supplier to customer. The cost is not held in one line. It is spread across freight, DC inbound, pick and pack distribution, store handover, and overheads. Logistics accounts for GBP 1.29 of each single. Add inbound retail and property costs, and the total cost to serve is GBP 2.85 per single. That is why this has to be managed end-to-end.
Removing one unnecessary touchpoint saves cost in several parts of the P&L, even in our most efficient site. Many logistics costs are created before product enters the network. This is a picture of where we are today. This used to be worse a few years ago. If carton and pack formats are wrong, we ship air. If hanging versus boxed is not settled at source, product arrives in the wrong shape and is handled twice. Today, 16% of our lines are hanging versus a target of 10%. If we do not create launch packs, more product is picked as singles than we should. If deliveries are not matched to store demand, cages travel part full. If we do not get our packaging correct at source, we push work into our network and our stores. Online needs e-comm packaging.
A move to more e-comm-ready packaging from 10% today to 100% is our clear target. This is why product operations, sourcing, and logistics must operate as one system. It is about making better end-to-end decisions so we remove cost before it enters the network. This is fundamental to driving our margin growth. These are the key inputs. In the short term, this will improve with our transformation. Our goal is to realize each of these targeted improvements within the medium term. Here is a good example of what can happen in a multi-item order today. This four-item basket is picked from four locations. The T-shirt comes from our automated Bradford site, which is future-ready. The jumper comes from Donington, but it arrives hanging, requiring folding and packing. The branded socks come from Thorncliffe, a manual site at around three times the variable cost per single at GBP 4.41.
The diffuser is picked by ISF in store and travels in its own parcel at a cost of GBP 6.93. If one item is returned, it travels back through Ollerton at a further cost of GBP 3.18. The cost to serve is GBP 20.67 on a sale of GBP 63, so a 33% cost to serve. For the customer, this means different shipment times, slow delivery promise, and early order cutoffs. For the business, this means more retail hours in stores, excessive and expensive carrier costs, and a slow, costly returns route, all of which in this example result in this 33% cost to serve. However, this is not the norm. Our total end-to-end cost is around 22%, but it shows exactly where cost can be added. The opportunity is to consolidate into fewer fulfillment routes, automate more of the basket, and simplify the return journey.
What are we going to do to stop this? First, we have already invested to increase capacity and lower cost in our existing network. Second, with the Lichfield acquisition, we will have a simpler, more modern, automated, and efficient e-comm DC. Third, we are building a return center that is efficient and can manage our volumes at peak. Fourth, a better end-to-end stock flow, so the right product enters the right route from the outset. Together, these changes support growth while structurally reducing the cost to serve. We are already investing in practical changes across the existing estate. We have made investments across our network, including expansion of our automated storage at Bradford and our retail distribution center in Swindon, where we have gone live with our first installation of autonomous robotics from Geek+.
The bulk of our investment has sat in Castle Donington, so additional hanging garment capacity consolidates garment handling and creates capacity for growth. A new click-and-collect sorter automates sortation and supports later cutoffs. A new boxed automation solution using new shuttle technology creates lower-cost automated capacity. Each investment removes manual activity, improves throughput, and makes the customer promise easier to deliver. They also help to continuously improve our proposition, moving what was our previous cutoff time at 6:00 P.M. to now 10:00 P.M. Lichfield changes both our capacity and our network design. Even during our incident when we were mapping out the plan, I knew we needed Lichfield to accelerate our progress. It gives us major automated fulfillment campus only 20 minutes from Castle Donington, making Lichfield our highest capacity and most efficient e-comm warehouse. This means more online demand flows through our most efficient site.
It also makes us consolidate orders, reduce split shipments, and take inappropriate fulfillment out of stores. Most importantly, it allows our customer to order at a later cutoff time and receive next day everything in one parcel at home or click and collect in your local store. Lichfield will be a lower-cost operation because it has been designed specifically for e-commerce from the outset. Product will arrive e-commerce ready in more standardized packaging, reducing the amount of handling, decanting, and packing activity required within the site. The automation then takes the efficiency right through the operation, from receipt and put away, through goods-to-person picking, consolidation, packing, and then finally dispatch. This allows us to drive higher productivity, reduce idle time, and use the building more densely than our existing sites, which were originally designed primarily around retail fulfillment.
As volume scale, we get simpler, faster, and a more productive operation, with lower variable cost and a lower proportion of fixed cost per unit, while also protecting product presentation and customer proposition. Lichfield materially expands automated pick capacity alongside the investment already made at Castle Donington. Castle Donington will provide capacity of up to 2.9 million automated singles per week, an increase of 1.1 million from where it is today, following investment into boxed expansion. Lichfield adds capacity progressively from next financial year, reaching up to 2.7 million units per week. As that automated capacity develops, we can progressively move volume away from today's manual DC and in-store routes and into automation. The result is more headroom for growth and a much higher share of volume moving through automated sites. This is not a future ambition. It is happening now.
We will go live for manual operations in January, and we will be fully automated by late summer. When you see this time next year, we will be fully live. Returns are the other major part of the online economics. Today, a return can take significant time as it travel backwards through the network before it becomes available again for a customer to buy. In the Simply Food, shown product can take 11 days to get back online. To solve this, we are opening our new Sheffield Return Center, which will come online for its first phase in the next few weeks before Christmas. From Q4, Simply Food stores will be able to send returns straight to the National Returns Centre, followed by full-line stores in the new financial year, where they will be processed before sending them back into the network to get stock back online.
That reduces the running cost per single from today at GBP 3.18 to when Sheffield is up and running to GBP 1.56, and puts product back on sale in under six days. This is both an efficiency benefit and a a commercial benefit. Lower cost, less lost selling time, and clearly better availability. Again, this is not in the future. It is happening now. The NRC goes live before Christmas for postal, Q4 for Simply Food stores, and the new financial year for all full-line stores. This benefit will be live very soon. Now let us go back to the four-item basket and flow that through the future network. Three items are fulfilled from Lichfield and one from Castle Donington. Two automated sites instead of four locations with no store picking, as will be the case this time next year.
The return moves to our National Returns Centre at GBP 1.56 and gets back on sale faster. The cost to serve falls from GBP 20.67 to GBP 13.71, an 11% reduction in our cost to serve. For the customer, later next-day cutoff and no more two parcels, everything in one. For the business, lower cost to sell, more efficient stock flow, stock back on sale more quickly, better service, and better economics delivered together. This gain will not be the same on every item and every order, but it is a good example of what can happen on a multi-item order. As these changes come together, online variable cost per single starts to reduce from next financial year. Reduced split shipments and fewer inter-DC movements lower transport costs. Moving more volume through automated capacity reduces reliance on higher-cost routes.
As we grow, fixed costs reduce as a percentage of sales. As a result, online growth becomes progressively less dilutive, not through one saving, but through capacity, consolidation, automation, and better utilization working together. With the return center coming initially online before Christmas and Lichfield automation live in late summer, we can soon access these levers to reduce our cost to serve and push further once the capacity is filled. I said last year that I see an opportunity of up to 500 basis points over time. I am confident we can deliver at least 500 basis points of savings in the online channel, with around 300 basis points of this coming from core savings alone without growth. Physical capacity alone will not deliver the full opportunity. We also have to improve the decisions that determine where stock goes. We need better end-to-end stock flow.
Systems enablement, as you heard Jag Weatherley talk about earlier, will deliver better assortment and range planning, more accurate demand planning, and automated allocation and replenishment. That is the key to unlocking channel-ready packaging, packing for channel at source, improving carton, box, and tote fill, and more launch packs, fewer singles. Alongside putting stock in the right place at the right time, first time. These changes connect the upstream decisions you heard about earlier with the downstream economics of the network. This is what the program adds up to. A better customer experience, improved availability, later cutoffs, fewer parcels, and faster returns. Improved stock flow, fewer touches, fewer movements, and better positioning. Reduced cost to serve through automation, consolidation, and simpler routes. This is a major commercial and efficiency lever, and it is central to making online growth more profitable. This is not a future strategy. It is happening now.
When we meet next year, Lichfield and the National Returns Centre will be fully live. David and I are clear. As our actions take effect, we expect to see online variable cost per single start to reduce from next financial year. The next question is how we create more value from the customer relationship itself. David Clark will now take you through our improved operations and give us a better opportunity and unlock better customer economics.
Thank you very much, John. I am David Clark, and it is my responsibility to lead our online and omni business. I am six months into role, and I am excited to share my initial observations and plans for the online business. We have already set out how we will reduce cost of goods and build the operation to reduce cost to serve by 500 basis points. This gives us a profitable base to grow from. I will now set out how we plan to grow and transform the business to a more dynamic, customer-focused, and commercially disciplined operation, ultimately driving towards 50% mix of business in a world where online growth is accretive rather than dilutive.
Our vision centers around three key pillars: attracting and inspiring customers, showing up in all key platforms with the right content at the right time, landing those customers into an inspirational fashion experience that knows their style and remembers their preferences, making buying effortless, removing friction at all points in the journey, connecting the online and offline journeys, and most importantly, creating engaged customers that come back, building a sticky ecosystem of propositions and creating the behavior of starting your fashion discovery here at M&S. All of this powered by technology, building a customer growth engine to attract, convert, and retain more customers. Today, M&S Online is a sizable business, generating GBP 1.4 billion of online fashion, home, and beauty sales in FY 2025. We have 10 million active customers, and we are the second-largest online fashion retailer in the U.K. Our online share is higher than ever.
However, we are still meaningfully behind the market leader, and there is a gap to close. For example, our online market share in men's suits, a historic area of strength, sits at around 11%. Kids, that is 8%. In beauty, it is only 2%. If you compare that to where we are strong, in lingerie, our market share is 25%. This is a strong online business, but there is lots to do to catch up.
The online growth model is really simple. It all comes down to this one equation: active customers, frequency, and average order value. Everything that I share with you today will either drive more customers to shop, increase the frequency of their shop, or cause them to put more into their baskets. When analyzing the business since I have joined, there are some key areas of strength, and this is where we need to protect the magic.
We have a large base of very loyal customers. Around 5 million customers account for 70% of sales, and they have been shopping with us for over five years. Protecting and growing our relationship with these customers is key. We have incredible brands and products that our customers love. Our style, value, and quality scores have never been higher. We have a large and convenient store estate. This is also a clear competitive advantage. We drive around 37 million visits a year into our stores for customers to collect or return their online orders. 50% of customers collecting an order in one of our Simply Food stores go on to make a food purchase. Around 21% of customers who walk into a full-line store for a return go on to make a fashion purchase. But we must modernize the rest. Our clear opportunity is frequency.
We have to give our customers more reasons to start their fashion discovery with us and come back more times. Given the strength of our brand and product range, we should be doing a much better job of attracting and inspiring our customers in their digital shopping journey. That means not just incredible owned campaigns, but showing up with fit-for-channel creative wherever and whenever our customer needs inspiration, and land those customers into a dynamic fashion experience that showcases style and creativity. All of that to showcase our truly incredible ranges. Over the past 12 months, Sharry and the team have done an excellent job to build brand momentum following the cyber incident. M&S has delivered new partnerships, sponsorships, activations, and our brand metrics are now stronger than they have ever been.
That investment has been necessary to put M&S top of mind for customer and create a strong foundation for us to build on. But now, we must rebalance our spends to maximize ROI and drive conversion into our digital business. What is required to be competitive in a modern digital landscape is moving faster than ever. There is now a need to reach all customers on all platforms with content that is relevant to them at all times. So we will move away from a classic campaign-led marketing model to an always-on mission and moment-based content strategy, leveraging both the best of M&S creativity and our broad ambassador and creator network. We have already started this, and we will build from here. We will leverage AI to help us build a digitally enabled content engine to drive this hyper-personalized message to our customers.
All of this will allow us to optimize our marketing investments into driving growth and deliver a better ROI from our media spend. You have already heard about our products, and having the right range for online is critical. The online channel allows us to have more choice and better availability than any individual store. Brands allows us to offer our customers more choice, and our brands business is growing at around 50% online versus last year minus one. We are well ahead in our brand pipeline, offering exciting brands like Levi's, Dr. Martens, Nike, Adidas, New Balance through The Sports Edit. But only 20% of our customers buy brands from us, so we have a significant opportunity to capture share of Wallet. Customer shopping brands drives overall incrementality.
Customers spend on average an extra GBP 76 a year with us once they have shopped a branded product, and almost half of that incremental sales comes into our own label business, our crown jewels. But right now, our standalone brands business is dilutive, and we need to become more commercially disciplined in the next stage of our growth as we continue to grow the brands business. Collabs create excitement. Aries was a particular highlight for me, with over 90% of the stock being allocated to the online channel, driving significant excitement and interest into our online business on the day of launch and generating a fantastic sell-through. Most importantly, adding to this comes the partnership with Sephora. Two complementary offers creating new opportunities to reach and serve new customers and expand our share of Wallet with our current base.
We will make the app the destination for style inspiration. We will bring to life our style authority, building on the success of Ibiza and London Fashion Week, and turning this richness into an always-on experience. We will help customers understand what to wear, how to wear it, and what works well together. We will build mission-led journeys for all occasions and bring the look together with just a few clicks. We will use richer editorial, video, and user-generated content so that our customers can see products on real people and understand how they should be styling them with greater confidence. We want M&S to be the start of the nation's style discovery and give customers a reason to open the app, browse, and discover our products. Now we have inspired our customers, we need to make their shopping experience seamless.
A simple and easy-to-use interface that is personalized to our customer needs is a base expectation, as are the right ways to pay, deliver, and communicate when things go wrong. We need the experience between our online and stores to work for our most loyal customers. The app needs to be the heart of our digital business. It should be our richest experience for our most engaged customer. It has grown to around 60% of our online sales mix, but we know that that is well behind benchmark. Our customers tell us that it feels functional rather than exciting, and it does not know them well enough. Less than 20% of our customers shop in both our online and store channels, but the customers that do are worth four times more to us than those that shop in one individual channel.
A world-class omni app needs to sit at the heart of our customer ecosystem, working equally as well as if you are browsing for inspiration on your way to work, shopping right now for something that needs to be delivered by midday tomorrow, or walking through the front doors of our Pantheon store. We have not been standing still, and some progress in catching up has already been made. We are making it easier for our customers to find what they are looking for. We introduced personalized search, so each result that our customer sees is unique to them. Later this year, we will further improve this with image, semantic, and conversational. Underpinning all of this is the product data transformation that Jag Weatherley and her team are leading, with rich, high-quality product data being the fuel for our onsite discovery. We are also catching up in pay.
By launching Klarna, we have given customers more flexible payment options, and we will continue to make checkout faster and easier. You will soon see Sparks integrated into the customer shopping journey to help customers find their personalized offers. In building a world-class app, this app will become increasingly personal, using the rich customer understanding that we have to tailor products, content, and inspiration they see so that it feels like M&S knows and remembers them. The opportunity is clear. Customers who engage with personalized modules are 4% more likely to come back and shop within 28 days, but currently only 6% of visits see these modules. We will step change this significantly in the next six months.
We will also do more to create a connected online and in-store journey, rolling out a new fashion click-and-collect pickup point across our food halls, linking our customers' online preferences to availability in local stores, notifying them of back-in-stock and new drops, and creating an in-store mode that helps them manage their click-and-collect orders, locate products, and find their offers more easily. We will create a smoother and connected in-store digital experience, and doing so will grow the percentage of customers cross-shopping by 3 percentage points in the next 18-24 months, with a long-term target of 25% of customers cross-shopping. Now talking about engaging and bringing customers back, an area that I am particularly excited about and believe we have the ability to move the dial meaningfully in the next 18 months.
We already have a large and loyal customer base, but they do not shop often enough with us, and we are not retaining enough of the customers that we acquire. We also currently have around 4.5 million lapsed customers, so there is a significant opportunity to re-engage those customers who we already have a relationship with. This all comes down to building a sticky customer ecosystem. Again, initial progress has been made towards building this ecosystem, and there are some strong initial proof points as to why we should develop this strategy further. We relaunched Sparks in April, and we platformed off some legacy technology. We introduced Wallet, but we are still early in the journey, and we know a lot of work needs to be done if we are going to make it simpler and more engaging for our customers.
Strong evidence also already exists that shows a relationship between propositional engagement and spend and frequency. The numbers tell their own story. Customers that shop with us without Sparks or app spend around GBP 213 a year with us. That grows to over GBP 1,500 for customers that use Sparks, app, and also have an M&S credit card. Credit card owners also visit us twice as often as any other customers. In addition, in a trial on a basic Delivery Pass, customers shopped around four times more than they did before. Those results give us confidence in further deploying delivery and pay propositions. I am really excited that Sparks will continue to improve and develop over time and become better integrated into our shopping journeys. Early next year, we will launch Delivery Pass, a simple subscription model for unlimited home delivery, matching the market.
Simple economics tells us that this proposition provides compelling value for at least 10% of our customers, those who already have high-volume shipping to their home. We will also launch M&S Pay, an M&S-branded flexible credit solution in FY 2028. Embedded seamlessly into the M&S shopping journey, it will give customers flexibility over how and when they pay, including the ability to spread the cost over installments. We believe this will drive meaningful increase in frequency and AOV. Adding just one shop per year from 10% of our customers equates to GBP 39 million of incremental revenue. The focus is clear, increasing customer retention and frequency. Today, we have the largest omnichannel customer base, but the frequency is the gap to the market leader and the single biggest driver of lost market share. Every element of our strategy is designed to address that.
Next year, we will rebalance marketing and modernize our content approach, improve our digital journey through more inspirational content, and improving our search and filtering capabilities. We will also integrate, we will launch M&S Delivery Pass and M&S Pay to drive bigger baskets and frequency. We will integrate Sparks, credit card, and Sephora loyalty. In the medium term, we will use AI to scale content and personalize the journey end-to-end. We will begin to explore agentic commerce and be ready to accelerate as that shift in consumer behavior hits home. We will continue to build and scale propositions that create stickiness across our ecosystem. If customers choose M&S more often, the outcomes naturally follow: higher retention, higher annual spend, stronger lifetime value, and ultimately, profitable growth. I will pass back to John to wrap us up. Thank you.
Thanks, David. Very, very clear, I thought. In summary, what I hope you've seen this morning is that whilst we've made great progress on our products, we still have significant opportunity on our product operations. We have a clear end-to-end plan to unlock our growth objectives, deliver sustained operating margin improvement, and ultimately achieve our medium-term financial objectives. Within the next 12 months, we'll have made a lot of progress, and within the next 18 months, by the end of the next financial year, we will have delivered with lead on product. We'll have our new critical path, we'll support our product life cycle. In line with the timeline Jag set out earlier, our three core systems will be integrated and supporting our workflow with product life cycle management. Digital product creation will be live or in adoption across all business units.
In omnichannel, our app will be enhanced with outfit discovery, improved styling, agentic search, and filter. We will finally have a Delivery Pass, and finally have our own credit proposition in M&S Pay. We will be operating with better next-day delivery and click-and-collect propositions with Lichfield live. We'll have a return turnaround of under six days with Sheffield fully operational. 9% fewer split shipments with Lichfield and Castle Donington operating together. Our store renewal and refresh programs will be making even more progress, and Sephora will be rolled out in 50 stores and online. To deliver our operating margin, Lichfield automation will be fully live, unlocking our pace and cost opportunities. The National Returns Centre will be fully live. We will have better buying aligned to the new critical path, and our ways of working with supplier partners will see faster decisions, closer to source, and improved fabric negotiation.
These steps in the next 18 months will see us make significant progress towards our medium-term objectives, deliver low to mid-single-digit sales growth, assuming the market remains constrained, and push our market share even further through volume and great product delivered through one global critical path. Doubling our online sales and growing to at least 50% participation. Our credit, M&S Pay, Delivery Pass will be delivered also. Maintaining stable store sales supported by the progression of our path to 180 stores. We're proud. Landing Sephora in 100 stores and online by the summer of 2028. Delivering sustainable operating margins at more than 10% with improvement from our online margin, with further benefits to come, including more automation in our future network and the realization of benefits from our sourcing ways of working.
I'm confident that this transformation will modernize our operations whilst protect and further improve the magic of our product. That will enable us to win with core, with style for everyone, leading on quality and value, easy to shop across every channel, and deliver our mission to grow from a brand people have always lived with to a brand people can't live without. I'll now hand you over to Alison, who's going to run through the financials.
Thank you, John, and good afternoon, everybody. I am going to set out now our capital allocation plans over the coming three years, and the value creation we expect to generate from them, and what that in turn means for cash generation, liquidity, and total shareholder returns. The transformation plan that we enacted in 2022 was geared to reshaping our balance sheet while we, in turn, reshaped the business. This investment for growth phase is now enabled by a balance sheet that is in a very different position and is now able to support our shareholder value creation plan. I've set out here our balance sheet as at the close of last financial year, and you can see that the recovery is now truly complete with gross cash of over GBP 1 billion and positive net financial funds of GBP 338 million.
During the first half of this financial year, we added a further GBP 40 million of net funds, having funded CapEx of GBP 500 million in the half, cash lease payments of GBP 200 million, GBP 45 million of pension contributions, and the payment of last year's final dividend of GBP 62 million. It is very important that we protect our balance sheet and our rating by making sure that we can continue to make all of these payments from cash generated and not from debt. Nonetheless, on current expectations, cash generated that is surplus to our planned requirements can be expected to drive a material increase in our positive net funds over time. Let's look at the profile of these investments.
The average capital spend per year for the next three years is GBP 800 million, which is an increase of GBP 50 million on the GBP 750 million that I spoke to you about last year, mostly because we have removed some disposals that were in last year's numbers, and we have also increased our investment in food logistics as we prepare for the next phase of supply chain investment. I'm going to talk to the net number of GBP 610 million. Maintenance CapEx is non-returning, and I'm not going to talk about it today. Our policy with respect to it is to continue to make sure that we support and maintain all of our assets, but clearly, as non-returning spend, we do try to put a cap on it. Our investments fit broadly into three categories, but as you can see, there is a lot of overlap.
Growth-only investment totals GBP 330 million, which is just over 40% of the total. New food stores and investment in loyalty and in online are the cleanest examples here. Investments that are solely focused on cost-out total GBP 50 million and include things like tray size optimization in food logistics, energy initiatives involving HVAC, which reduces heat loss in our stores, and LED lighting to improve our energy efficiency are good examples there. Alongside both of these sits a series of enablers, largely in D&T. Enablement-only investments would include things like investment in our store network and in Wi-Fi, in data sets, for example, for each area of the business that facilitate price investment and loyalty.
And then clearly, there is a lot of overlap with investments that are non-store that serve all three missions, and the systems that John and his team have just talked about are good examples there. Planning and merchandising systems not only reduce our critical path, facilitating sales, but they take a lot of cost out by reducing duplication and making us more productive. Similarly, modern automated DCs not only reduce cost, but they improve the customer proposition, which facilitates sales and reduces lost sales opportunities. These investments serve both top-line growth and margin expansion in both businesses. A quick reminder of our investment criteria. Store paybacks of at least five years, with new stores which sit in the growth bucket requiring a higher IRR and a shorter payback period. Cost-out investments are set at the same level as rotations.
DCs, for example, fall into the cost-out bucket, and here we mean five years from them becoming operational. Briefly, when we talk about investment criteria and we do our business cases, we just look at the primary benefit, so which category these investments principally benefit, and then we do the business case on that alone. Despite the fact that numerous investments serve more than one purpose, we carry out the business case based on one benefit alone. Let's look at food CapEx now. For the next three years, we expect to invest an average of GBP 470 million per annum in the food business, of which growth-only investments total GBP 200 million, and that spend is predominantly new food halls, with 66 new food halls set to open between FY 2028, the next financial year, and FY 2030.
The single largest element of growth and cost-out is our investment in Daventry, which is about GBP 60 million per year, and then there's further spend in that growth and cost-out for D&T and for logistics. Cost-out-only spend of GBP 25 million covers things like energy, lighting, HVAC in our stores and in our food DCs, our investment in Iris and AI for stores, all of which will reduce running and resource costs in both our stores and our DCs. Enablement spend for food is predominantly D&T and covers the systems associated with running the food business, so ordering, allocation, data sets, warehouse platforms, pricing systems, et cetera, all of which also clearly facilitate top-line growth. As I previously said, we target a four-to-five-year payback for new stores or rotation stores, and a five-year period once operational for our new DCs.
All of the capital programs that we have set out for the food business meet these returns hurdles. Avonmouth and Daventry between them facilitate a 30% increase in the capacity of the food network, which is what will facilitate volume growth of the magnitude that we set out at our most recent results, 16% volume growth in a market which was flat. It is an essential investment to deliver the volume required by the demand that we see. We are already breaching our network capacity every Christmas, so these are not speculative investments. The reduction in the cost per case, which is the business case metric for new DCs, if we only applied it to current volumes, would result in a logistics saving of GBP 45 million a year. Similarly, larger stores are an essential part of becoming a full-basket retailer and focusing on families.
New store contribution in the first half of this year was 2.2%. As we set out last year, we anticipate that gross new space contribution over the next three years will add 10% to the top line. You have heard a lot about investment in FH&B this morning. Average annual investment is GBP 305 million, and growth alone is 1/3 of the total and is a mix of store rotation, logistics, and investment in online.
There is also a significant intersection here where non-store investment is serving all three missions. We are investing right across the value chain, as you have heard this morning in FH&B. We are investing in full-line stores. We are investing in the logistics networks that deliver product to them and fulfill our online missions, all underpinned by technology and the capabilities required to grow both store sales and online sales while removing significant cost from online.
Over the coming three years, we plan approximately 13 renewal and rotation stores alongside logistics investments, as you have heard, for automation expansion in Castle Donington and automation at Lichfield. D&T investments in online, as David has set out, fund a step change in the consumer experience on our site and on our app with improved search, including semantic search, increased levels of personalization, our investment in Sparks and the loyalty experience, including the Delivery Pass, and the technical integrations of Klarna and M&S Pay, all enhancing the customer proposition and driving sales growth online. The PLM and planning platform systems that Jag spoke about are included within enablement and growth, as is investment in our store networks and in Wi-Fi. Similar to our food investment, the returns hurdles for the FH&B investments are set out here. Online does tend to return more quickly than four years.
In fact, a lot of it repays back within the year. Supply chain cost out is the same as the distribution center returns hurdles that you heard about in food. I will come on in a minute to talk about our full-line rotation plan, because there, the progress and the issues that we face are different to those for food. A few examples here, some of which you will have seen earlier in both David's and John's presentation. Investment in our online platform obviously improves the customer experience, and all of what we have talked about this morning improves conversion, but it also importantly eliminates preventable returns. Lichfield, Sheffield, and Castle Donington simplify the physical flow of stock and returns. They reduce handling time and fulfillment costs.
The reduction in variable cost per single that David talked about of 20% starts in FY 2028, but as you can see, it increases meaningfully over time as the different DCs come online and we increase their throughput. This really matters. This really matters because growth in FH&B, as you have heard, is increasingly coming from online, from beauty, and from brands, and we are not assuming that the wider clothing market will recover. Our three-year plan therefore links FH&B growth directly to the successful delivery of supply chain, technology, and online investments. Store rotation. We have had some very successful full-line store rotations, and Pantheon, which you have heard about from Stuart this morning, is probably the most visible example of that.
But we also have some very old full-line stores, as Stuart also set out, which don't do M&S justice and which are problematic from an asbestos and a RAAC concrete perspective, which makes them expensive to renew. Where we can find appropriate alternative sites, we will rotate them, and we already have some good plans for sites like Reading, for example, where we will do just that. But with some of the others, Stuart talked about Bromley, High Street Kensington, Princes Street in Edinburgh, we will have no choice but to renew these stores. They are in locations we want to remain in, and there are no alternative sites. The problem with them being expensive to renew and highly profitable is that our approach to them in the past has been to continue to trade them and wait for the contribution to decline, which it is not doing.
Over time, we will lean in to what needs to be done with these stores. In the meantime, as Stuart talked about, we are working on a format that is more scalable than that of Pantheon. But we will do it slowly, one a year or so, protecting our P&L and our blended investment returns as we do so. D&T, which you've heard about all morning, underpins the delivery of all of the investments that we have talked about. The returns that we are targeting depend on the technology underneath them being delivered well. That capital investment is included in the D&T spend in the previous slides. But the nature of technology investment does also involve a significant OPEX component, where it covers, for example, software or licenses.
Beyond the capital expenditure that we have set out, D&T also requires operating cost investment across the life of the plan. This sits across growth, cost out, enablement, and modernization. Our ERP upgrade, for example, sits in that last bucket. Average annual operating cost investment is about GBP 70 million a year. When we assess these investments, we look at the whole cost of delivery, and we weigh it against the value created. The second part of D&T spend is that over time, we have accumulated complexity. Legacy, technology, and infrastructure, which makes our ongoing operation expensive to run. But as well as investing into new technology and into new infrastructure, we are also investing in taking significant amounts of technology cost out. This is really important because with all of the investments in new, we are also adding to the run cost of technology.
Today's CapEx is tomorrow's run cost. It is really important that we continue to rationalize our technology estate, and John Hunt is already busily working on a rationalization plan for D&T, which I'm sure we will talk to you about at some point in the future. That does bring me neatly around to cost out. We have had our target for structural cost reduction across the business of GBP 600 million by FY 2028, and we are well on our way to deliver that, with GBP 450 million of that already delivered and clear line of sight to the rest. We will, of course, keep going from there, and we will set a new ambition once that has been delivered. Of the GBP 600 million, about 45% of those savings have come from increased retail productivity in our stores, about 25% from logistics, and about 20% from D&T.
The next phase beyond the GBP 600 million is likely to see greater weighting to logistics, driving cost out in both businesses with the ramp-up of all of the efficiencies that you have heard about this morning. It is also likely to see greater weight to D&T taking cost out in both businesses once John has firmed up his plans, particularly around our resourcing mix in technology. The right resource in the right location and the right mix of our own employees and our third-party partners. What does this all add up to, and does it set us on the right road to our ambition of mid to high single-digit sales growth and profit growth ahead of that? These are the areas in the P&L which will benefit from the investments that we have talked about today. It is obviously not the full story of the P&L.
It does not include benefits that do not require investment, so things like COGS, negotiated COGS reductions, for example, or negotiated sourcing benefits in FH&B. These are the areas that are impacted positively by investment, and the number of ticks represents the scale of the impact. What you are seeing is top-line growth in both businesses and margin expansion from logistics reduction and retail productivity. The timing of the benefits is obviously important, and you can see that food sales continue their current momentum, whereas with FH&B, meaningful sales growth kicks in later in the plan, most noticeably in FY 2029. We have spoken a lot about DC investments today. Daventry coming online in FY 2029 really creates benefits that start here, but then continue beyond that. Donington capacity investments have already started with the click and collect sorter and boxed automation.
They will see some benefit this year, but then more material benefits picking up later in the plan. Lichfield, really important in driving down total cost to serve online, comes later in this current financial year with automation kicking in this summer. It goes live manually in January, automated in the summer. So no real benefit this year, but then benefit flowing into FY 2028. Sheffield, however, will start to deliver some benefit this year, our national return center in Sheffield, which will actually become operational next month. Increased store productivity from investments like Iris and AI will continue throughout the life of the plan, but picking up particularly in FY 2028 once it has been rolled out to the full store estate. The cash generation from those investments will then grow over time along with top-line sales growth and margin expansion.
This then brings us to the framework that we use to identify the element of that cash generation that is surplus to requirements. I spoke at the beginning of protecting our rating and operating within its liquidity parameters, and this framework is designed to do exactly that. Our balance sheet at the half year had GBP 1 billion of cash, GBP 600 million of bond debt, some of which at least we expect to maintain. We have just announced the doubling of the ordinary dividend to 8.4p, resetting it to a more meaningful but still sustainable level. Thereafter, our intention, as Stuart set out already, is that dividend growth should remain linked to earnings delivery. Our plan, of course, would be to reduce dividend cover from the current level of about 5.7 times to a more normalized 3.5 times.
Beyond free cash, post the dividend, cash will only be surplus after we have funded each year's investment program, allowed for working capital lumpiness, met pension, lease, tax, and other commitments, and retained an adequate liquidity buffer. For now, in this period of high investment, we have set that at GBP 500 million. But it does mean that cash generated that is surplus to our planned requirements will not be allowed to accumulate without a purpose. Tying those P&L returns, therefore, into the future potential for shareholder returns, this is the algorithm that those returns can then generate. Starting with the impact on sales growth. In food, volume growth creates scale, while automation, better forecasting, reduced waste, and a more efficient logistics network lower unit costs.
In Fashion, Home & Beauty, online growth, improved availability, which supports more full-price sales, better sourcing improves buying margin, and a simpler fulfillment and returns network lowers cost to serve materially. Across stores, technology, and supply chain, we are removing manual activity, reducing duplication, and retiring legacy systems. Over all of this, we have delivered approximately GBP 450 million of structural savings to date, and we will deliver a further GBP 150 million over the coming financial year. That is how we will deliver profit growth ahead of sales growth. This plan does have line of sight to our mid-to-high single-digit sales growth and profitability growth that is higher than that over time. More importantly, unlike our peers, the vast majority of those returns come from earnings growth. As Sharry would say, "We love that." Thank you all, and I will hand back to Stuart.
Thank you, Alison. Can I thank the team for such a great presentation? Hopefully, you found that really informative. Thank you very much for your attention this morning and as we enter the afternoon. Thank you.