MARKS AND SPARKS HEADING FOR A ‘5,000 VOLT SHOCK’
New chairman Archie Norman tipped to try a VERY tough remedy as store profits slump by 9%
INVESTORS hoping for Marks & Spencer’s long-anticipated revival in profits will have to wait a little longer as the nation’s biggest clothing retailer is this week expected to reveal another slide.
The decline will pile pressure on chief executive Steve Rowe to find a solution to the company’s struggling fashion business, which is up against relentless competition from cheaper rivals and online shops.
Rowe, who took over from Marc Bolland last year, is closing down underperforming shops at home and abroad.
He has also recruited directors for key roles. Big name hirings include new clothing boss Jill McDonald, who came from cycling chain Halfords.
In addition, Marks & Spencer is cranking up the expansion of its flourishing food business in the hope the success of its gastropub fish pies and truffled cauliflower cheese will counter inertia on the fashion rails.
Analysts at JP Morgan expect the company’s figures to show that profit in the six months to September dropped by 9 per cent to £212million after stripping out the effects of the one-off costs of overhauling the business.
The official figures will be released on Wednesday as the retailer prepares for its busiest period of the year.
Sources say new chairman Archie Norman, who arrived in September, has taken an ‘active role’ in reviewing strategy. Norman has a strong track record of transforming lacklustre stores and other businesses. His successes include ITV, Asda and Australia’s biggest retailer Coles.
His appointment, which was backed by frustrated City shareholders, is expected to drive the pace of change at the company. It is widely believed that poor strategy has left the firm falling behind its rivals. One senior source even said M&S had ‘lost 15 years’. Norman’s role is non-executive, which means he does not have direct management responsibilities. But several sources, including ones familiar with the business as well as former colleagues of Norman, said he is likely to examine the possibility of ditching poorly performing stores more quickly than planned. He is also keen to reinvigorate the womenswear business – possibly by finding ways to appeal to younger shoppers. It is believed he wants to ‘change the culture at head office to allow managers to make decisions more quickly.’ One director, who has worked with Norman before, said: ‘You don’t get someone like Archie involved unless it’s a last resort. ‘M&S might argue that it isn’t, but I would say they have already lost crucial years under previous management and can’t afford to lose many more.’
In a revealing interview in 2011, when he was chairman of ITV, Norman said the key to transforming a business was ‘fracturing the old culture’. He said: ‘You send signals that old patterns of behaviour are simply not going to continue.
‘You look for those 5,000-volt shocks that send a frisson around the whole company, and you get everybody talking and saying, “Wow, this leadership really means it. It really is different now.” ’
In another interview, he said: ‘The starting point is to tell it how it is. The more negative the situation, the more important that is, because your people are on the front line.
‘They know what is really happening and they are looking for the leadership to reflect what they feel – the unvarnished truth. At the same time, you need to point a way forward.’
One major shock came with Rowe’s decision to slash 525 head office jobs last year. However, some argue that may not have gone far enough to suit the incoming chairman, who replaced former investment banker Robert Swannell.
Marks & Spencer has large stores on expensive high streets in an era when more people are doing most of their shopping online.
Rowe has been praised by some observers for tackling the firm’s shortcomings in a way that Bolland failed to do.
He has worked at M&S since he was 18 and is known by some in the business by the nickname ‘Nails’ because of his steel-eyed appearance. Rowe is said to be popular among staff who appreciate his frontline experience.
But there is nervousness that his inexperience as a chief executive and his close relationship with the business mean he may find a more fundamental appraisal of its options more difficult.
One senior City source said: ‘M&S is too cautious and decisions are too often taken by committee. Because
of that the organisation is too slow for the modern market.’ But he added: ‘Steve Rowe is desperate to make this work and a good chairman can provide much needed support to face into some of the more difficult – or more risky – decisions he will have to make.’
Sources say Norman’s pay, when published, could be indicative of his anticipated involvement. They also say the new chairman may not be as forgiving as Swannell.
One headhunter said: ‘Swannell gave Marc Bolland too much rope and the company is now paying for that. Don’t expect Archie to make the same mistake.’