Marks & Spencer boss says recovery plan will weigh on profits

Marks & Spencer sign

The new boss of Marks & Spencer has warned that his turnaround plans for its struggling clothing business will hit profits in the short term.

Steve Rowe said the group needed to lower its prices and put more assistants on the shop floor to win back customers. Clothing sales have grown in only one quarter over the past five years and Rowe has already made it clear that improving the division’s performance was his “number one priority”.

M&S share price in 2016
M&S share price in 2016.

“We are investing to re-establish our price position by sharpening prices and to enhance service by putting more employees into our stores,” said Rowe. “These actions, combined with the difficult trading conditions, will have an adverse effect on profit in the short term.”

His comments came as M&S reported a 4.3% increase in profits to £689.6m in the 53 weeks to 2 April. Sales rose 2.4% to £10.6bn. “We continued to outperform on food but we under performed on clothing and home sales,” added Rowe. “This is not satisfactory.” The company’s shares fell 7% to 414p in early trading,

Rowe, who has worked at M&S for 26 years, succeeded Marc Bolland as chief executive at the start of April. To rejuvenate its struggling clothing division he promised to improve quality and fit of its clothes as well as offer more entry level prices, addressing criticism that its fashion had become too expensive.

The retailer has started a review of its cost base but Rowe delayed making any pronouncements on major business areas such as the future of its large store estate or its international arm, where operating profits tumbled 40% to £55.8m, until the autumn.

Rowe said his turnaround of the business faced major headwinds. “Consumer confidence has dipped, the clothing market is flat, online sales have slowed and there’s deflation in the food market,” he said. “Our customers are changing too as they become increasingly style and health conscious, shop around and expect more.”

M&S share price since 2004
M&S share price since 2004.

After analysing the behaviour of its 32 million shoppers he said that while some retained a “deep rooted affection for M&S” for others M&S “is no longer their first choice”.

To boost its clothing performance recent initiatives include a collaboration with TV presenter Alexa Chung and a “see now, buy now” autumn collection designed to whet customer appetite for next season’s fashions. Rowe said the retailer would now focus on delivering “stylish everyday essentials”.

“Our customers look to M&S not for fashion trends but for accessible products they can wear with confidence,” he said, adding it would reduce its reliance on promotions to boost trade. “We have been too reliant on promotions and sales which has eroded our value credentials.”

In a measure that provided some cheer for shareholders, the retailer said it would pay a special dividend of 4.6p per share or a total of £75m.

Rowe has made a number of changes since taking the helm. Earlier this month he shook up the senior management team by halving its 20-strong management board. Rowe promised the “smaller, more focused team” would result in “more efficient decision-making and move us closer to our customers”. The changes led to a number of departures including digital director David Walmsley, kidswear and home director Stephanie Chen and international director Costas Antimissaris.

Rowe began his retail career aged 15 as a Saturday boy at M&S’s Croydon store in south London. He has worked across the company in store management, menswear and furniture and held a number of senior positions including director of retail and e-commerce. He joined the board in 2012 when he became head of the food division.

Powered by Guardian.co.ukThis article was written by Zoe Wood, for theguardian.com on Wednesday 25th May 2016 08.09 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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