So, Marks & Spencer has finally done it and knocked Tesco off its Most Admired perch. In time, the tale of M&S’s recovery over the past three years will go down as a textbook tale of how to breathe new life into an ailing company. It has been a process by which the old-stager regained its place in the affections of the British public with a clever ‘Your M&S’ marketing campaign. It’s an attempt to create a warm intimacy that, while slightly old-fashioned, is also somehow very 21st century – as is its famous Plan A, which has captured the sustainability zeitgeist perfectly.
One vital weapon in the M&S armoury has been the character of its CEO Stuart Rose, who at 58 is now working harder than he has ever done during his 35-year career as a retailer. He is quite at ease with his high profile – unlike his predecessors – and has managed to charm even the most grizzled and cynical of City analysts with his quips and aperçus, whether it’s ‘weather is for wimps’ or displaying his intimate knowledge of the fabrication of his firm’s men’s boxer shorts.
This is not to say that he comes across as arrogant – quite the reverse: he has displayed great caution in his summaries of how he thinks the organisation for which he first worked as a youth is faring. He is no less popular with his staff. It’s even said that when he visits stores, females from the tills queue up to get his autograph.
What’s interesting is how high M&S’s score is. It has stacked up a total of 76.33, which is the highest winning total ever. Not only that, but the company has also won outright – against 219 competitors – the highest overall marks in its Quality of Goods and Services, its Ability to Attract, Develop and Retain Top Talent, its Value As a Long-Term Investment, its Quality of Marketing and its Use of Corporate Assets. This is quite an achievement.
The figures are impressive – when Stuart Rose took over as CEO, Philip Green had been trying to buy the outfit for £4 a share, and in the dark days of 2003 the price had fallen below £3. The share price this summer almost hit £7.50, although it has since fallen back a little. The chance of making a yearly group profit before tax of £1bn is now in sight again.
Confidence – so important in a retailer – is high and M&S is out there taking the fight to all corners of the high street. Now talking about tugging customers away from Gap, for example, M&S is to open stores in China as part of a plan to generate up to a fifth of sales from overseas within five years.
The first stores will open in Shanghai next year, and the chain is also looking at sites in Beijing. The move marks M&S’s return to international expansion after its humiliating withdrawal from the world stage in 2001 when sales and profits crashed. The group’s forays into the US, with the Brooks Brothers menswear chain and Kings Super Markets, were no less disastrous and sold at a loss.
Stuart Rose has a typical response to doubters: ‘Just because you have a car crash, it doesn’t mean you should never drive again.’ He said he would not ‘bet the ranch’ on international expansion but that his predecessor, Luc Vandevelde, had made a mistake when he pulled out of France.
There is no shame, though, in Tesco’s fall to second place. The organisation has enjoyed a storming year and the score that has won it second place is actually higher than its winning total last year. Tesco remains a formidable operator and ends the year doubtless breathing a big sigh of relief that the numerous competition and monopolies investigations of its dominance seem to have thrown up nothing of any substance. Tesco is now leading a charge into the US with its Fresh & Easy chain. The US is the toughest nut for British retailers to crack and has proved a graveyard for many of them, but Sir Terry Leahy has yet to fail at anything he has turned his hand to.
Sir Terry has again won Most Admired Leader, pipping Stuart Rose into second place with 25.2% of the free vote, compared with Rose’s 21.1%. He looks as if he could go on for another 20 years: little wonder that his senior lieutenants at Tesco keep getting poached by competitors.
At rival Sainsbury’s, they probably wish Leahy would go off and run the NHS instead – as consistent rumours suggest the Government would like him to. But things have got much better at Justin King’s operation and as a result J Sainsbury is back into the top 10 overall at number 7.
It’s astonishing that King should have achieved this while distracted by not just one bid but two this year. He’s not going to be nearly as rich as he might have been if the big sale had gone through, though.
The other big Most Admired story of 2007 is the rise of BSkyB. It has climbed from 41st to third place in the overall list and this is an extraordinary achievement on the part of CEO James Murdoch. When MT interviewed him in May, it was clear that he still sees his organisation as an outsider.
The younger Murdoch is an alarmingly focused chip off the old block who shrugs aside any suggestion that he’s moving to the US to head News Corp when his father finally hangs up his green eyeshade. Sky people fume about regulation, despise Sir Richard Branson and loathe the BBC. They cannot like ITV much, either: their spoiler of an investment is now looking like a substantial loss as the share price has dipped alarmingly.
The truth is that BSkyB – however ruthless and buccaneering – is now becoming a respected part of the UK business establishment. It came first in every single measurement in the Media sector, beating hardy performers such as Pearson, WPP and the Daily Mail and General Trust. It also scored the highest mark overall on two separate measurements – the Capacity to Innovate and the Community and Environmental Responsibility sections.
The company is heading towards carbon neutrality and proud of it. It does innovate, and not just with Sky+, its move into telephony and its adoption of high-definition broadcasts. It moves forward in its very own lightning-strike fashion – the raid on ITV shares was said to have been worked out on the back of a cigarette packet by James Murdoch and his wily FD Jeremy Darroch during a brief business trip to
Spain; it left Branson reeling.
Professor Mike Brown of Nottingham Business School – who has researched and produced Most Admired for the past 15 years – approves of Sky’s ability to embrace risk. ‘You have to hand it to Sky that it knows that to win well in business, you have to play hard and really take a gamble these days.’
More broadly, he is concerned this year that with all the very high scores – especially among retailers – we may be seeing a surfeit of ‘irrational exuberance’. Let’s hope not.
One of the most closely watched sectors this year is banking. It has been a turbulent 12 months, with big takeover battles, notably for ABN Ambro, where Barclays faced off against RBS. And this was, of course, followed by the sub-prime fallout from the US market and the disaster that has befallen Northern Rock. Some of the research for Most Admired was conducted before the full horror of the Newcastlebased bank’s desperate lack of liquidity became apparent.
The most interesting statistic is the score of 6.8 that Northern Rock received for Use of Corporate Assets, the second-highest score in the banking sector. This suggests that its competitors did once admire how much it squeezed out of what little it had in terms of real assets. Its rivals knew where the bank’s strengths lay – and where its fatal weaknesses were as well. How telling, though, that for Financial Soundness it scored a lowly 5.7, which placed it ninth out of 10. The Co-operative Bank – included despite the fact that it isn’t a plc – was thought to be even less sound, which seems slightly unfair. We are certainly not recommending that Co-op bank members race round to their local branches to withdraw their funds. Indeed, the Co-op bank comes top of the CSR measure in its sector.
Looking more broadly at the list, there is a sense of stasis. Sixteen of the 22 sector winners are the same as last year. That shows how difficult it is to shift well-established, professionally run outfits from their dominant position. It’s a bit like the football Premiership – a clutch of stellar clubs with astronomical player-purchase budgets and wage bills hog the top quarter of the division and are trailed by also-rans that would struggle during a Sunday kickabout in the park.
One team that seems to be all-conquering is the one led by Chris Hyman at Serco. You can read more about this one-of-a-kind leader in this month’s MT Interview. Serco won the Support Services sector by a huge margin and has rocketed into the overall top 10 for the first time, rising from 13th to fourth place.
How telling that the once-mighty Rentokil Initial came last in every single category but one in its sector and has plummeted to 205th in the overall list. In Telecommunications, the whole sector seems depressed, with the low overall score of just 407.8. Phone people seem to have been in the dumps for a long time.
Finally, it’s time to say goodbye to a pair of old-stagers who have disappeared from the listed markets and thus from Most Admired. Both Hanson and ICI have fallen into the hands of foreign owners.
Hanson, that symbol of swaggering British capitalism of the 1980s, was taken over by HeidelbergCement – a fact that will doubtless have the late Lord H and Gordon White spinning in their tombs.
ICI was a founder-member of the FT-30 way back in the 1930s. Long the flag-carrier for British business, it was this year a trophy purchase by Akzo Nobel. As its one-time leader Sir John Harvey-Jones noted when we interviewed him for MT’s 40th anniversary edition last year: ‘We live in a country where every f***ing thing is up for sale. The means has become the end. I still believe money is how you measure the effectiveness of a business, not the end in itself.’
But it’s still money that does the talking...