Marks and Spencer needs “fundamental” change to its business, including the complete disposal of its Simply Food stores, if it is to grow sales and profit in the medium term, according to analysts at Credit Suisse.
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In a damning report on the regime of M&S executive chairman Sir Stuart Rose, Credit Suisse’s retail research team questioned the extent of the company’s 2004-2008 recovery and argued that radical action is needed now to restore its fortunes.
“We have analysed M&S’s strategies and believe that these need to change in a fundamental way if the company is going to have any medium-term prospect of growing its sales and profit base,” Credit Suisse said.
The analysts acknowledged that the “recent collapse” in M&S’s food business was due to consumers trading down across UK retailers. However, they argued the retailer’s food operations is in “long-term decline”.
“We believe that its food performance has in the medium term benefited from problems at Sainsbury and the change of ownership at Safeway,” Credit Suisse argued.
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By GlobalDataM&S’s larger rivals have also made inroads into the retailer’s “core marker” through selling more upmarket food, expanding their store networks and moving into the on-line and convenience channels, the analysts said.
Credit Suisse also suggested closing or selling the company’s Simply Food outlets, retaining its food business in mainline stores only.
M&S announced in January that it would close a number of Simply Food stores, a decision that Credit Suisse argued indicated the retailer has doubts over he format.
“In addition to the lack of strategic logic, we feel that the format is a high-cost format – this, we believe, has been one of the contributors to cost de-leverage in the overall UK retail business during the M&S ’recovery‘ period of 2005/06 to 2007/08,” the analysts said.
“Allied to product positioning targeting premium convenience this is a most unfortunate combination in current markets.”
M&S refused to comment when contacted by just-food today (3 March).
