Once hailed as the saviour of Marks & Spencer, chief executive Sir Stuart Rose has faced questions over his leadership since the turn of the year. A set of mixed annual results has cast further doubt on the outlook for the company’s food business but, as Dean Best reports, the M&S boss believes he has the right strategy to reinvigorate the group.
After weeks in the firing line, Sir Stuart Rose, chief executive of UK retailer Marks & Spencer, has come out fighting.
Sir Stuart, who rejoined M&S in 2004 and had been hailed for revitalising one of the flagship names in UK retail, has faced criticism from all sides since the New Year.
Weak trading over Christmas, tension with key food suppliers and controversy over his role at M&S meant the 58-year-old had plenty of questions to answer yesterday (20 May) as the company published its annual results.
A cursory look at the headline numbers showed that M&S had reached a landmark figure for retailers and made GBP1bn (US$2bn) in profits over the last 12 months. However, a more detailed examination reveals that M&S had, at best, a mixed year – and remains wary about its prospects for the year ahead.
Pre-tax profits were up 4.3% to just over the GBP1bn-mark, while revenues rose 5.1% to GBP9bn. However, M&S said like-for-like sales in the UK had fallen 1.7% over the last three months – the second successive quarter in which sales had fallen.
That fall led M&S to report that like-for-like sales had dipped 0.5% during the whole year, with food sales down 0.4%. It also prompted a downbeat assessment of trading from Sir Stuart. “Trading for the first seven weeks of the year has been mixed,” he said. “April was, as expected, a difficult month, reflecting dramatically different weather patterns compared with the same period last year. May to date has shown a marked improvement although we remain cautious about consumer sentiment.”
For the M&S boss, however, the current difficult trading conditions in the UK retail sector vindicated his prediction earlier this year that the retail environment would be tough in 2008. “I told you it was getting tough in January – but I got beaten up for it,” Sir Stuart said, referring to criticism from the business press. “We have 21m customers coming through our stores and they told us it was getting tough.”
With the outlook for consumer spending uncertain, M&S has turned its focus inwards, giving more attention to its cost base in a bid to shore up margins. M&S suppliers have also been feeling the pinch with the retailer launching “Project Genesis”, a review of its supplier network. Inevitably, with food manufacturers facing rising commodity and fuel costs, the review has won M&S few friends; one supplier reportedly denounced the retailer as “brutal”.
|Marks & Spencer, chief executive Sir Stuart Rose|
Nonetheless, M&S is targeting GBP50m in cost-savings this financial year and Sir Stuart said the company would continue to closely monitor its supply base. “We had got to the stage where some [suppliers] were too light for heavy work and too heavy for light work and we have asked them if they were fit for purpose,” he said. “This has led to some painful conversations, but for every one of those, there will be some positive conversations. We can’t stand still.”
One of those painful conversations was with Northern Foods, the retailer’s largest supplier. Last week, Northern decided to mothball a ready-meals plant supplying M&S after the two sides failed to agree new terms on the contract. Sir Stuart said Northern would remain the retailer’s biggest supplier but reiterated his assertion that M&S “cannot stand still”. “We have to take the business forward,” he added.
A controversial strategy that Sir Stuart believes could take the M&S food business forward is its decision to stock some of the UK’s best-loved food brands. For a retailer renowned for its own-label food, the announcement yesterday that M&S will stock some 350 “must-have” brands was something of a step-change for the business – and a contentious one at that.
Sir Stuart defended the decision to stock brands like Marmite, Heinz ketchup and Weetabix and was adamant that the move would not harm the M&S brand. He said: “It will strengthen [the M&S brand]. Our customers are a bit frustrated. They say to us: ‘We love what you do [and] your shop is fantastic but my husband only wants Marmite’. The move is recognition of two things: first that we are listening to our customers and, second, that were putting our efforts in food into customer service and convenience.”
And it is in convenience that Sir Stuart believes M&S can reach its target of boosting its share of the UK grocery market from its current 4.3% to 5%. M&S may have decided to slow its modernisation programme for its main stores – a sign, perhaps, of its renewed focus on costs – but the company is looking to further expand its Simply Food convenience store network.
Nevertheless, Sir Stuart will continue to face accusations that, compared to its larger UK grocery rivals, M&S food is too pricey for consumers increasingly looking to tighten their belts. Typically, Sir Stuart brushed off those claims, although he admitted that the company needs to do more to convince consumers that M&S offers all foods – not just fancy ready meals. “We sell fantastic value for money,” he said. “[But] we are not just a prepared foods business; we offer the complete range. The challenge is to get that message over to consumers.”
For his part, Sir Stuart has faced a challenge to his own authority in recent weeks. A group of disgruntled investors has criticised plans for Sir Stuart to take on the additional role of chairman until 2011, arguing that M&S is not following guidelines on corporate governance. Lord Burns, the current M&S chairman, conceded that there were “some issues with communicating” the plans but said the move would be “best for the business”.
Sir Stuart, unsurprisingly, was forthright in his belief that he should take on the role of chairman. “The board made a unanimous decision that this was the right thing to do. That decision is the right decision,” Sir Stuart said as he pointedly highlighted the progress he believes M&S has made since he was appointed chief executive four years ago. “The company is a different business to what I came back to in 2004,” he added.
Whether Sir Stuart will make the right decisions needed to breathe fresh life and expand the M&S food business in the next three years remains open to question.