'Middle class and boring': the stark truth about M&S
his review of the company's business, and it makes for pretty
depressing reading for M&S shareholders - not least the 'middle
class and boring' assessment of the company's brand, long viewed as
its greatest asset. But will Rose's new 'back to basics' strategy -
also unveiled this week - be enough to stave off a bid from Philip
Green's Revival group?
Rose was appointed chief executive of Marks & Spencer on 31 May 2004, and immediately set about reviewing the company's business, and the strategy introduced under the previous management team of Luc Vandevelde and Roger Holmes.
What he discovered was a group which had shifted too far away from its traditional strengths in a bid to bolster its position in an increasingly competitive UK retail market. Ironically, this meant that its competitors had been allowed to steal market share as the Marks & Spencer brand equity was weakened through a cluttered product offering and a lack of innovation.
On top of this, the supply chain was found to be slow and over-committed, costs were too high and there was a company wide lack of leadership which meant that the group was not getting the best out of its people.
All of which, inevitably, has filtered through into the company's financial performance: figures for the 14 weeks to 10 July, also reported yesterday, showed that clothing sales were down by 0.5 per cent on the same period a year earlier, while household goods saw sales plummet 12.8 per cent - despite the opening of a new home-only store.
Food, for a long time the only driver of growth at M&S, also continued its worrying slide into the red, with sales dropping 1.5 per cent on a like-for-like basis (although actual sales were up 3.9 per cent as a result of a number of food-only stores opening during the year).
This weakened position has opened the door to Green, owner of the Bhs and Top Shop retail groups, who is proposing to buy M&S for around £9 billion - far more than its current market valuation but nonetheless not enough to tempt the M&S board.
Instead, the directors have put their faith in Rose's undoubted retail ability, and will no doubt be happy with his immediate response to the company's problems, including his willingness to take a number of tough decisions.
Chief among these is the decision to close the recently opened Marks & Spencer Lifestore in Gateshead and cancel the construction of a second in Thurrock. But Rose has also decided to sell off the M&S financial services arm to HSBC bank, abandon plans to roll out further Simply Food stores (although most of the existing stores under this banner will remain, as they have, by and large, been a success).
The decision to focus on profitable Simply Food stores - i.e. those generating turnover of over £3 million - is likely to pay off in the long term, and indeed some new food-only stores still will open (mainly in high footfall locations, such as train stations).
Rose has also taken the decision to scrap a large number of product lines. The number of food SKUs had risen by 40 per cent in the past five years to reach about 4,000 in total, he said, many of which were very similar, and 500 have already been cut in the past month with more are likely to follow.
But will these measures - and others designed to cut costs, stimulate consumer interest, improve the product offer and return cash to shareholders - be enough to keep Green from garnering enough shareholder support for a possible bid?
Robert Gregory, retail analyst at M+M Planet Retail, believes so.
"My feeling is that the decision to 'get back to basics' makes sense - especially in terms of the clothing offer where core consumers have become confused and alienated by the positioning of the company and the introduction of a range of sub brands," Gregory told FoodandDrinkEurope.com.
"In terms of food, this side of the business has performed well in recent years, but the fact that even this is now struggling is a major cause for concern. The business has been hit by the likes of upmarket Waitrose, while the rise of the premium own labels at Tesco (Finest), Sainsbury's (Taste the Difference) and Asda have also eroded M&S's point of difference. There is a place for M&S on the high street and I think a healthy clothes side of the business will rub off on the food side - and vice versa."
As for the possibility of a successful bid from Revival, Gregory had this say: "I think an important thing to note (and one which seems to have been lost by many people so far) is that Stuart Rose is pretty much doing exactly the same as what Phillip Green would do if he was in charge - i.e. cut costs, demand better deals from suppliers, refocus the range, etc. The basic strategy would be pretty much the same whoever was in charge."
