M&S has recruited internet starlet Martha Lane Fox in a bid to push its online operation, which appears to be performing well below its potential.

The former lastminute.com co-founder will join M&S as a non-executive director, it was announced today in tandem with the release of the company’s annual results.

The big numbers look great, with £8.6bn of annual sales and almost £1bn in profits, but its new-look website is contributing very little to the company’s performance, if this Guardian story is anything to go by:

“Although M&S has improved its online offer with the relaunch of its website last spring, it is regarded as lagging behind the competition with its internet strategy. However, Mr Rose is confident his target of £500,000 sales online can be achieved and is delighted to have wooed Ms Lane Fox onto the board.”

A mere £500,000? Surely that’s a misprint (I’m awaiting clarification). When you consider that Tesco pulls in £1.2 billion from its online operations, half a million quid is peanuts, and massively below where a brand of M&S’ calibre should be.

UPDATE: M&S has confirmed that it should in fact be £500 million. Now that’s more like it…

The retailer nevertheless reported online growth of 60% in the past year, with 55 million visits to its website. The online division is housed within M&S Direct, which also includes catalogue / home delivery sales. M&S Direct pulled in £160m in revenue for the year, but the company didn’t provide any detail on its internet-generated revenues.

However, the company did outline some of the recent changes to its website (which we reviewed a couple of months ago): 

“We worked with Amazon to redevelop our website to improve functionality and customer experience, re-launching the website in March this year. The improved functionality includes better navigation, search capability and quicker ordering and, overall, is a much stronger representation of the M&S brand.”

“This enhanced functionality will enable us to increase our basket size through improved cross selling of product across our entire offer. A new ordering platform will enable us to improve availability and we are now working on upgrading our in-store ordering systems to use a single integrated order platform across all channels of stores, telephone and online. This will provide improved levels of customer service and fulfilment.”

Marks and Spencer's recently revamped website

All good, but it needs to significantly expand its online operations if it is to make the most of the M&S brand. With 4.3% of the UK food market M&S is in a fine position to grab new customers, if Martha Lane Fox can persuade the retailer to roll out a comprehensive online grocery service.

Currently its online food service is limited to party and picnic food, which is missing a trick, though there are fulfilment issues to consider in expanding this side of its business. Nevertheless, it should be worth it – a recent study by PayPal forecasts that online grocery in the UK will be worth £6.25bn by 2010.

Tesco, the supermarket-turned-hyperretailer, released its results last month and was far less coy about its internet business:

  • Online sales = £1.226bn (up 29% YOY)
  • Profits = £83.4m (up 49% YOY)
  • Regular online customers = 850,000
  • Orders per week = 250,000

That should provide plenty of offline food for thought for Mr Rose and Team…