Marks and Spencer, the high street retailer which has regained the public’s affection in the last few years, seems to be in danger of losing it again. M&S said this morning that like-for-like sales plunged 5.3% in the last three months, as customers continued to desert the high street in droves. ‘Consumer confidence levels have deteriorated markedly and market conditions have become more challenging,’ a sombre Sir Stuart Rose said today.
M&S’s food business seems to have been hardest-hit, with sales down nearly 5%; since the likes of Aldi and Lidl have enjoyed big gains lately, it looks as though cost-conscious shoppers are starting to trade down from the more pricey M&S offerings. Rose offered various excuses for this (lower spending, competitor discounting and so on) but he clearly thinks something’s fundamentally wrong: he also said today that food boss Steven Esom – once seen as a candidate to succeed Rose for the top job – is leaving the company with immediate effect, to be replaced by M&S Direct boss John Dixon. That’s not going to help the succession planning, is it…?
It’s a rapid fall from grace for Esom, who only quit as MD of Waitrose just over a year ago (after missing out on the chairman’s job at John Lewis). He joined M&S at a time when the food business was thriving, on the back of its slightly annoying but horribly effective ‘This is not just food…’ ad campaign, so he’s obviously been unlucky that his tenure has coincided with a consumer spending slowdown. On the other hand, his aggressive push for more efficiency in the food supply chain – he called this ‘Project Genesis’, but according to the FT, suppliers called it ‘Project Genocide’ – seems to have put a lot of noses out of joint (Northern Foods even decided that it wasn’t worth making ready meals for M&S on the new terms and closed its plant).
Sir Stuart didn’t really go into any detail about today’s blood-letting, except to say that ‘we need to increase the pace of change on a number of operating and trading initiatives’. Perhaps Esom managed to upset so many people that Project Genesis was in serious danger of becoming Project Exodus?
On the other hand, it’s not just food where M&S is struggling – general merchandise revenue (which includes clothing and homeware) was also down 6%, despite an increase in website sales – although Rose said that was just a function of the shrinking market, insisting that M&S was maintaining market share. ‘Four years ago, M&S was a weak business in a strong market. Today, we are a strong business in a weak market’, he said.
Unfortunately, investors didn’t buy it: M&S shares lost more than a fifth of their value after the news was released. Clearly the market thinks this is not just a slowdown: this is an M&S crisis...