The timing of Marks and Spencer’s announcement that Morrisons CEO Marc Bolland will succeed Sir Stuart Rose at the helm of the company may have raised eyebrows in the City, coming as it does the day before Morrisons unveils its third quarter results. Nevertheless, the news has been roundly welcomed as a positive step for the bastion of middle England. Katy Humphries reports.
The share price tells it all.
Marks and Spencer saw its shares surge – rising by almost 6% at today’s (18 November) close – following the announcement that Marc Bolland will take up the reigns as M&S chief executive from Sir Stuart Rose next year.
Admittedly, Bolland has limited retail experience. Having only served three years at pure-play food supermarket chain Morrisons, he is yet to clock up any time in non-food retailing.
Nevertheless, he is widely credited with breathing fresh life into Morrisons, which had struggled to deliver following its problematic acquisition of Safeway.
Since joining the supermarket operator in 2006, Bolland has steered Morrisons to strong sales and earnings growth and, in September, was able to hail a 45% lift in half-yearly profits.
Bolland has overseen the company’s re-branding, ditching the old yellow and black corporate logo for a more modern looking green and yellow combination. He has cut costs out of the business while also investing in refurbishing Morrisons’ supermarkets and growing the group’s store base. Bolland recently completed the acquisition of 38 Co-operative and Somerfield stores and in the first-half of the year Morrisons also opened 19 new outlets.
As Richard Hunter, head of UK equities at Hargreaves Lansdown tells just-food, while Bolland spent a “reasonably short period of time” at Morrisons, the amount of experience he picked up there will be “immeasurable”.
“If you cast your mind back to the state of the company when he arrived, it was really a company on its knees, issuing back-to-back profit warnings,” Hunter says. This contrasts sharply to the Morrisons of today, with its market-beating sales growth.
Although Bolland has proven his metal turning around Morrisons’ fortunes, a number of challenges await him in his new role at M&S.
While some may argue that his experience in food retailing makes him ideally suited to help M&S restore the appeal of its food offer – which accounts for about half the business – it is also fair to say that the food propositions of Morrisons and Marks and Spencer are almost polar opposites.
Situated – as Marks and Spencer is – in the middle of the market is sometimes an uncomfortable place to be, not least during periods of economic uncertainty.
Particularly since the onset of recession in the UK, the company has found itself fighting a war on two fronts.
Retailers focusing on value, including the juggernaut-like Tesco, Wal-Mart’s Asda and – indeed – Morrisions, have wooed M&S consumers with their lower prices. At the same time, up-market rival Waitrose has also eaten into Marks & Spencer’s traditional middle class customer base, with the launch of its own label Essentials brand and tie-up with Duchy Originals.
“The market is very competitive and being a broad, middle market player is the most challenging position to occupy,” Verdict Research’s James Flower tells just-food. “Marks and Spencer must justify its position in the middle of the market,” he adds.
Bolland also has some big shoes to fill. Sir Stuart joined M&S in 2004 and has been the driving force behind attempts to halt the company’s slow decline ever since.
Rose has focused on expanding into emerging markets such as India and China – a strategy that he obviously feels Bolland is well-suited to develop.
Addressing analysts and investors during a conference call earlier today, Rose insisted Bolland was the right candidate to handle M&S’ international growth. “There will be a need to appraise the strategy and move forward,” he indicated.
While Rose attracted criticism over breaches of corporate governance issues when he combined the roles of chairman and CEO, it is arguable that few other executives would have been able to brush aside shareholder concerns and continue running the company however they saw fit, as Rose succeeded in doing.
Rose will remain as executive chairman no later than July 2010, he said, bidding his final adieu “when everybody’s happy”.
In an investor note, Bernstein analysts express their hope that the appointment of Bolland over a number of internal candidates will usher in a new era for the company.
“The appointment of Marc Bolland as new CEO for M&S opens the opportunity for change at M&S. We were concerned that an internal CEO promotion would very much translate in ‘more of the same’ as far as the strategic direction for M&S is concerned. An outsider appointment, and the announcement that Sir Stuart Rose will stay on as a part-time Chairman only until July 2011, opens room for maneuver,” the analysts write.
According to Bernstein, Bolland should focus on driving cost efficiencies in order to boost shareholder value, a strategy that he is well-placed to execute given his lower cost base supermarket experience.
However, they add: “We will have to see where Marc Bolland will decide to take the M&S business.”
The rest of the market will be waiting curiously with them.