Is M&S to blame for its own decline?

Marks and Spencer has failed to hold onto its FTSE 100 place, but was that an impossible task?

by Adam Gale & Stephen Jones
Last Updated: 04 Sep 2019

Brexit wasn’t the only Great British exit to dominate the headlines this week, as the news broke that high street stalwart Marks & Spencer will shortly lose its place in the FTSE 100. 

While Boris Johnson may yet pull a filibustering trick from his voluminous sleeve before the week is out, M&S CEO Steve Rowe will rue his inability to prorogue the LSE’s quarterly reshuffle of Britain’s biggest largest listed companies, with M&S shares falling 1.5 per cent to 187p (valuing the company at £3.6bn) by the end of Tuesday. 

In any case, it would merely be delaying the inevitable. In reality, the retailer’s fall has been a long-time coming. A decade ago profits topped £1bn, but following a consistent decline in retail sales, caused in part by an inability to adapt to increasingly challenging high street conditions, latest profits were just 10 per cent of that. 

Rowe, who took over from former boss Marc Bolland is 2016, is the latest in a line bosses to attempt to re-energise the struggling giant. The closure of 120 of the firm’s 1,000 highstreet stores and, in a bid to capitalise on the success of M&S’s food arm, the £750m purchase of half of Ocado’s retail business have so far done little to stop the rot. 

Is it a failure of management then, or were they facing an impossible task? Management Today plays devil’s advocate and presents both cases.

Don’t blame the bosses: M&S was always doomed

What goes up must come down. An immutable law of business, as well as physics. 

Marks and Spencer was in many ways a victim of its own success. An entire generation of consumers became attached to the M&S brand during the 80s and 90s, but that almost guaranteed the same brand would be toxic to the next generation. What financially emancipated young person, after all, chooses to shop at the same store as their mother? Fashion won’t allow it.

This was only compounded by the fact that competition in clothing became much more intense, thanks in large measure to the rise of Primark and fast fashion.  

For years, pundits and analysts have called for M&S to reposition to capture younger consumers from its new rivals. But how, exactly, was it supposed to do that without alienating its existing clientele? Edgy, youthful ranges would never feel authentic while pleated floral skirts were on sale in the next aisle, and vice versa.

So while M&S has made changes, a full transformation was never really feasible: shareholders would not have accepted a radical strategy that jeopardised a solid (if gradually declining) revenue stream for the chance of winning a new one at some point in the future.

The most they'd have taken is what they actually got: smaller changes in style on the one hand, cost-cutting on the other.

Once M&S lost its clothing mojo, it therefore had little choice but to realign around food – which it has actually managed to do very well, despite the increase in competition from the likes of Waitrose on the one side and Pret on the other - but that’s just not enough to keep it at the top of British business.

No excuses: M&S dropped the ball

That’s one way of looking at it. Here's another.

M&S had serious challenges. But isn’t the whole point of a great management team to get a firm through challenges just like that and still succeed? Surely that’s what the art of reinvention is all about.

Despite attempting to jazz up its garments, with jeans and denim ranges endorsed by the likes of Holly Willoughby, clothing head Jill Macdonald was ousted in July after buying failures led to new ranges running out of stock.

M&S would have declined in the clothes market without this handicap. But even if that were the case, what was the firm’s vision for the future? To turn a large, struggling business into a small, struggling business isn’t much of a long term strategy.

The fundamental weakness of M&S as a clothes store is that it doesn't know who its customer is. In today's day and age, it's no longer enough to try to be all things to all people. 

It’s hard perhaps to blame former CEO Bolland, who came from the food side rather than the rag trade, for not finding out who that customer is. The same cannot be said for current CEO Rowe.

His decision to cut back on clothing space, ranges and stores in favour of food may be rational in the circumstances, but it has come at a price and maybe too slowly. 

The store closure plan caused an estimated hit of £440m to profits, while the partnership with Ocado, funded through a £600m rights issue, is yet to bear fruit. 

"It was a late move into online services that was generally seen by investors as an expensive deal to offer expensive ready meals in what has now become a highly competitive and increasingly diet conscious market," says Gordon Fletcher a retail expert at the University of Salford Business School. "Instead of revitalising fortunes, the Ocado deal seems to have sealed the fate of the company."

Unless M&S wants to be driven out of the clothes market altogether, it needs to figure out who it is for and where it's going to be excellent, and then sell that vision to customers, staff and shareholders. 

Which side do you agree with? Tweet us at @MT_editorial.

This piece is an amendment of an article originally posted in 2016. 

Image credit: GianniM/Wikipedia


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