ByAlex Brummer, Alex Brummer
Among the bigger retail losers in the January reporting season was the private shareholders’ favourite, Marks & Spencer.
The travails of HMV and Blockbuster, that went into administration, may have dominated the headlines, but it is the Dutchman Marc Bolland, who took the helm at M&S in May 2010, succeeding the popular executive chairman Sir Stuart Rose (now chair of Ocado), who finds himself under pressure.
Bolland did not inherit a strong hand from his predecessor. Rose succeeded in steadying the ship after the disastrous rule of Luc Vandevelde and Roger Holmes and steered the group through the post financial crisis recession of 2007-2010. He was, however, unable to make up for what he has called M&S’s “lost decade.” While other UK retailers Burberry and Tesco expanded overseas, M&S largely was left at the starting blocks.
Next, Tesco, John Lewis and other specialist retailers made the transition to on-line retailing effectively. M&S was slow to embrace the new model.
Also, behind the scenes, M&S was still operating with an extraordinarily old-fashioned logistics system, using dozens of high cost warehouses and distribution centres, when others had modernised many years before.
Finally, M&S’s fashion offering, directed by Kate Bostock, had become stale. As the dominant force in womenswear for decades this left M&S with a problem.
Direct rivals like Lord (Simon) Wolfson’s Next and upstart discount rivals such as Primark, have been, and are still eating its cake.
It is interesting to note that Next and Primark, both parts of family dynasties (the Wolfsons and the Westons) have enjoyed more consistent family management in the period since the founding M&S families stepped back from the fray.
The task then for Bolland has been considerable. In his specialist area of food and drink learnt at Heineken and Morrison, Bolland has done well. M&S was among the better performers over Christmas with same-store sales up 0.3 per cent. By introducing more than 200 special holiday lines, Marks managed to stay ahead of the pack despite the squeeze on household incomes.
In contrast, general merchandises sales, that include clothing and other on-food items such as furnishings, tumbled 3.8 per cent. Bolland is instituting the changes but it looks to be in a race against the clock.
M&S’s biggest investors are American long-term value funds, Brandes and Capital Research, that have a reputation for patience. But some of the UK funds, including Standard Life, are more short-term in their thinking. David Cummings of Standard Life Investments, that controls 1.6 per cent of the shares, has given Bolland until the Autumn of 2013 to turn things around.
It may be a tall order. Bolland argues that the traditional measure of same store or like-for-like sales does not help M&S. He believes that the group has enough floor space in the UK and unlike its rivals has preferred to upgrade existing stores rather than expand. Competitors like Next and Sainsbury add floor space each year building in automatic same stores sales growth.
The most important change made by Bolland so far is the choice of a new fashion team led by former Debenhams and Jaeger boss, Belinda Earl. The first results of her team’s efforts will be seen this summer. He has also invested heavily in on-line with Laura Wade-Geary leading the transformation.
The impact of some of her work can already be seen in stores where sales assistants use iPads, hung around their necks, to help customers source and size what they want. Real advances will be made, however, when the company moves from the existing Amazon-run platform to its own that will project the M&S brand around the world and will move beyond clothes to food, wine and other lines.
In contrast to Next, that has always had a comprehensive catalogue and mail order service, M&S has been starting from scratch.
Among Bolland’s other project is to make M&S global again. In Europe it began in France on the Champs Elysees with a small store that has been a resounding success followed by a much larger suburban Paris store, that has seen people queuing around the block.
Further afield, India has been seen as a priority and the group sensible has linked with the Reliance Group and is in the process of opening 50 stores there. Nevertheless, several years of underperformance is seen as having made M&S vulnerable again to a bid possibly from private equity.
The company, however, enjoys one weapon that is not available to other bid targets. Any buyer will need to win over the company’s army of up to three million private investors and are fiercely loyal having seen off Sir Philip Green’s bid in June 2004.
It is the ultimate poison pill against unwanted advances. However, even this loyal group could be tested if the sub-performance of the last year were to continue.
Alex Brummer is City Editor of the Daily Mail