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  1. Analysis
May 25, 2011

In the spotlight: Bolland at M&S – one year in

Marc Bolland has completed a year at the helm of Marks and Spencer. He outlined the skeleton of his plans for the UK retailer in November last year, and has continued to add meat to the bones as the year progressed. With the retailer's full-year results yesterday (24 May), another layer was added to the body with Bolland outlining the retailer's European ambitions and its plans to segment its stores by demographic. How successful has Bolland's first year as chief executive been? And what do industry watchers make of his plans? Petah Marian reports.

Marc Bolland has completed a year at the helm of Marks and Spencer. He outlined the skeleton of his plans for the UK retailer in November last year, and has continued to add meat to the bones as the year progressed. With the retailer’s full-year results yesterday (24 May), another layer was added to the body with Bolland outlining the retailer’s European ambitions and its plans to segment its stores by demographic. How successful has Bolland’s first year as chief executive been? And what do industry watchers make of his plans? Petah Marian reports.

Despite the blip in Marks and Spencer’s stock price yesterday, analysts have largely been impressed by chief executive Marc Bolland’s first year in the role.

According to Neil Saunders, an analyst at Datamonitor’s retail arm, Verdict, Bolland has been able to straddle the very fine balance between “being radical and wanting to reinvent things, and keeping stability, and maintaining its trading level”.

“What we’ve seen is him starting to make his mark,” Saunders says. “Now he’s setting out some things that are more interesting and more radical and I think he’s got the confidence and the credibility now within the business to move forward.”

Saunders believes that former chief executive Sir Stuart Rose has been a difficult act to follow, but one that Bolland has been successful in succeeding. “It’s not easy taking over from Stuart Rose because Stuart Rose is very visible, very credible and very well-liked by shareholders and generally customers as well. I think Marc Bolland has done very well in establishing himself and the trading figures have been very impressive. I think he’s going to do a very good job over the next few years.”

While the perception of Bolland’s performance has been positive, analysts have outlined concerns over M&S’ price positioning, particularly if consumer confidence dips or if its rivals sharpen their value credentials.

RBS analyst Justin Scarborough believes there “would still be a risk in some cases” that if the UK consumer is going to trade down further, as they did in 2008-9, the perception of M&S as a premium retailer opens it to the risk of “consumers trading down”.

The retailer could face a futher threat under a resurgent Tesco, rejuvinated by new chief executive Philip Clarke. At Tesco’s most recent full-year results, Clarke said the UK business had “lost momentum” and that it had “not had a great year by its own standards”.

The industry is “still awaiting Tesco’s next move to regain its balance and growth in the UK grocery market,” according to MF Global analyst Mike Dennis. “Any significant shift in investment into price could impact all of the major grocery retailers.”

The retailer may also face further competition as The Co-operative Group and Waitrose plan aggressive convenience store growth, and the takeover of Iceland Foods by another retailer could increase competition.

Saunders believes that Bolland has a good understanding of the issues the retailer is facing. “He seems to come up with some solutions to demonstrate that he’s not afraid to take those problems on,” Saunders reasons.

Solutions proposed by Bolland included segmentation of its stores by the demographic attributes of their catchment areas and a step-up in innovation.

Plans to segment M&S’ stores was described as “dead obvious” by Saunders, adding that it is not a “radical idea” but a very necessary one.

Saunders acknowledges, however, that the move will be complicated, leading to lots of operational changes and a lot of “emotional and mindset changes within M&S”. Nevertheless, the fact that Bolland has been willing to make that one of the key parts of his strategy, Saunders says, “demonstrates that he understands what he is doing, but is willing to take radical steps to keep M&S growing”.

In any case, according to Scarborough, segmentation is something the “best retailers have been doing for years” and that the rest have “been playing catch up”. Scarborough suggested that it could be argued that M&S is “behind the curve” in this aspect.

Nonetheless, in terms of the retailer’s innovation, Scarborough highlighted its heritage as being particularly innovative in food, saying that it launched the first chilled ready meal in the late 80s-early 90s.

The retailer has in the past been accused of having a “flag planting” or “scattergun” approach to international expansion. Bolland has committed to focusing its international development, announcing the acceleration of growth in India and China.

He said that in India, M&S plans to open 10 new stores this year with partner Reliance Retail and in Shanghai, it opened three stores over the past year and has plans for a further six over the next year.

The retailer’s focus on a franchise model internationally is a “very cheap way of very quickly rolling out stores,” according to Scarborough, and that M&S has “very good franchise partners”.

He said the outlook for the growth of M&S’ food operations in the UK was “steady rather than spectacular” and that if you have “greater aspirations” for growth then international franchises are a “sensible, pragmatic thing to do”.

Saunders said that while Europe offers a “very big opportunity” for M&S, the markets are “very mature”, but that it’s low market share would mean that they would “only have to do a little bit to get a good return”.

The Verdict analyst said that it was important that M&S take its time to develop its European offer and suggested the thinking behind M&S’ segmentation plans in the UK would be an important one to translate abroad. “In would open a store in one location that is very similar to one in another. In terms of international expansion, that works even less well than it does within a country”, highlighting differences in consumer tastes and preferences in each country.

Bolland may have gained the confidence of the industry in his ability to run M&S, and his major initiatives have been well recieved by the city. However the retailer’s major challenges, at least locally may turn out to be outside his control – in the form of increased competition, and a stretched consumer.

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