Welcome to the M&S merry-go-round

Welcome to the Marks & Spencer merry-go-round, where Britain’s most famous high street retailer goes round in circles for years trying to fix its ailing clothing business.

Thursday’s stop on the carousel is at the delayed summer sale, an option used by M&S chiefs to show that they are focused on permanently lowering prices for shoppers, rather than on one-off promotions. Other stops include hiring new style directors, relaunching the clothing range and changing the logo, all options taken by the former chief executive Marc Bolland.

Steve Rowe, Bolland’s replacement, said his plan to turn around the dire performance of M&S’s clothing business is to focus on lowering everyday prices and drastically cut the number of promotions. This has led to M&S running 28 fewer promotional events in the past three months and moving its summer sale to July, later than usual.

Rowe’s strategy hurt sales in the last quarter, which fell an eye-watering 8.9% in clothing and home on a like-for-like basis. But the M&S chief executive said he is seeing “encouraging early signs”.

M&S has been here before, though. Rewind to 9 July 2005 and the then M&S chief executive Stuart Rose was trying to explain a 10.3% drop in clothing and home sales. “We have made good progress. This has enabled us to delay the summer sale by 18 days. We go on sale tomorrow with 40% less stock than last year,” he said.

If you also go back to 7 January 2009, another disappointing trading update, there are further similarities with Rowe’s strategy. Rose talks about closing shops, cutting head office jobs and changing M&S’s generous benefits scheme, all options that are under consideration once again.

This does not mean there is anything wrong with Rowe’s strategy. As a keen M&S historian who has worked for the company for more than 25 years, he is well aware of the paths taken by his predecessor.

However, what this does show is that nearly 20 years after M&S reached its peak by recording pre-tax profits of more than £1bn in 1998, there are no easy answers to getting its clothing business growing again.

Rowe needs time. He should also be encouraged to be radical by the M&S board. This means closing stores – M&S has far more than its rivals – or even bringing clothing production back to Britain. Alternatively, it could be time for M&S and its shareholders to accept that it will continue losing market share to online and international clothing rivals, such as Primark, Zara and H&M, and put more resources into its impressive food business instead.

Eye off the ball

Any sportswear retailer in Britain should have been focused on two things in the last week - making sure they take advantage of Wales’s run to the semi-finals of Euro 2016 and protecting themselves from the repercussions of the Brexit vote.

Sports Direct appears to have failed on both counts. It does not sell the official Wales kit because Adidas, the manufacturer, wants to deal with other retailers. Sports Direct has also warned that a fall in the value of sterling after the EU referendum will hit the cost of buying goods abroad.

Neither of these points are unforgivable if you are shareholder in Sports Direct. Adidas is a major supplier, so any cracks in the relationship are damaging.

However, the warning about foreign exchange costs, which analysts said could lead to “pretty remarkable” pain on profit margins, is worse.

Sports Direct has not had a permanent finance director since Bob Mellors stepped down in December 2013. Matt Pearson was named as the acting chief financial officer in June 2015, and a year on, he still has “acting” in his title.

This is shocking corporate governance at any time, but it is even more important now that Sports Direct’s hedging of foreign exchanges will determine how much of a financial hit it takes from Brexit.

Pearson could be a talented and competent stand-in, but if so, Sports Direct and its founder, Mike Ashley, need to end the uncertainty by giving him the job permanently.

The company is treading on dangerous ground by not having a permanent finance director during a time of volatility in financial markets. Sports Direct is simply giving investors another reason to not to buy shares in the company.

Powered by Guardian.co.ukThis article was written by Graham Ruddick, for The Guardian on Thursday 7th July 2016 19.52 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010


JefferiesAnd the Best Place to Work in the global financial markets 2018 is...

Register for HITC Business News