Marks & Spencer Investors Want Encore From New CEO Bolland

In Marc Bolland’s last role as head of William Morrison Supermarkets Plc, he turned around an unprofitable, unfashionable U.K. food retailer. Marks & Spencer Group Plc investors want an encore when he takes the helm May 4.

The 51-year-old Dutchman faces a battle on two fronts in his new job, as supermarkets snatch sales of both food and clothing. Marks & Spencer’s annual revenue stagnated at about 9 billion pounds ($13.7 billion) in the past year and is just 10 percent higher than a decade ago. Revenue at Tesco Plc, the U.K.’s biggest retailer, almost tripled in the last 10 years.

“There is a very significant task ahead,” said Robert Talbut, chief investment officer at Royal London Asset Management, which owns Marks & Spencer stock. “There is a lot of potential, but there are some considerable challenges in terms of competitors’ offerings.”

Within two years of his arrival at Morrison, Bolland turned a loss of 250 million pounds into a record profit of 554 million pounds, scrapping the company’s century-old logo and introducing new store formats. During his tenure, sales rose more than 20 percent to 15.4 billion pounds and the stock gained 26 percent. Marks & Spencer shares dropped 34 percent during that time.

Source: WM Morrisons via Bloomberg

A file photo of Marc Bolland, the fomer chief executive officer of WM Morrisons Plc. and incoming chief executive officer of Marks & Spencer Group Plc. Close

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Source: WM Morrisons via Bloomberg

A file photo of Marc Bolland, the fomer chief executive officer of WM Morrisons Plc. and incoming chief executive officer of Marks & Spencer Group Plc.

“If he handles M&S like he handled something that was totally new to him at Morrisons, he will do very well,” said Roger Owen, who worked alongside Bolland as Morrison’s property director. “He would always test us, push the envelope.”

Food, Clothing

Among Bolland’s priorities will be reviving Marks & Spencer’s food unit, the source of almost half the retailer’s sales. In clothing, the former Heineken NV executive will have to contend with a shift toward inexpensive and fashionable clothing in the U.K., where Wal-Mart Stores Inc.’s Asda and discount chain Primark have grown to a similar size in terms of the number of clothing items sold.

That competition has squeezed margins. Profit in Marks & Spencer’s last fiscal year was 38 percent lower than in 1998.

“It’s going to test his mettle,” said Nick Coulter, an analyst at Numis Securities in London. “It’s definitely a positive change for M&S, it’s just whether Marks is too much of a challenge for him or anyone.”

Marks & Spencer declined to make the new CEO available for an interview before he begins his job.

Bolland worked quickly and with lots of “single- mindedness” when he started at Morrison, said Owen, who left in 2009 after 34 years. He established consumer panels to garner public opinion as soon as he started, leading to the opening of smaller-format stores in southeast England and London.

Big Incentive

Among Bolland’s boldest initiatives was to change Morrison’s black-and-yellow logo. According to Owen, the switch to a new green-and-red branding went ahead even though it didn’t have the full backing of founder’s son Ken Morrison, who led the company for 55 years before Bolland’s arrival.

“Whilst he may not of 100 percent convinced Ken, he wasn’t going to be unconvinced,” Owen said.

Bolland has a big incentive to succeed at Marks & Spencer. While he will earn a base salary of 975,000 pounds, the total value of his potential compensation stands at about 15 million pounds, including performance-related shares. Stuart Rose, who is retiring as M&S CEO after almost six years, earned a base salary of 1.1 million pounds last year and no bonus.

As Bolland has no experience in the clothing industry, analysts and investors expect his first overhaul to be in food.

Same-store sales at M&S’s food unit rose 1.8 percent in the quarter ended March 27, lagging behind the industry growth rate of 3.6 percent as measured by researcher Kantar Worldpanel.

Fruit Trifle Desserts

New food products such as “Simply Fuller Longer,” ready meals that offer low carbohydrates, have so far failed to stem a loss of business to supermarkets. Food retailers such as Tesco and Waitrose Ltd. have acted faster to meet a shift in consumer preference toward quality and affordability.

“People are mostly hoping Bolland will really give some pizazz back to the M&S food offer,” said Simon Irwin, an analyst at Liberum Capital in London.

M&S, which traces its roots to a market stall in the 1880s, has traditionally only sold its own-brand goods, such as fruit trifle desserts, which typically command a higher price than at Tesco. M&S stocks 6,000 grocery products versus 40,000 at Tesco.

That may change permanently under Bolland. He will probably extend a branded-food trial, which consists of 400 products like Unilever’s Marmite spread and Procter & Gamble Co.’s Pantene shampoo and was rolled out nationally starting in November, said Jean Roche, an analyst at Panmure Gordon & Co. in London.

“They have a whole host of customers who would come back or existing customers who would buy more, if only the products were there,” said Roche, who has a “buy” rating on the stock.

‘A Little Confused’

In clothing, where M&S’s 12 percent market share makes it the biggest U.K. apparel retailer, Bolland needs to meet the demands of both teenagers and pensioners alike. With more than 21 million people visiting its stores each week, M&S aims to serve all demographics, leaving it vulnerable to economic headwinds, Collins Stewart analyst Greg Lawless said in a note.

Investors such as Talbut aren’t convinced by the retailer’s efforts to drive sales, which have included new ranges such as ‘Indigo’ and collaborations with designers like Zandra Rhodes. Marks & Spencer currently has nine clothing brands.

“I’m not sure people know what the various brands actually mean,” Talbut said. “I would call the branding a little confused. It’s very uncertain how they can extend their appeal beyond their traditional heartland of middle England.”

International Plans

Sales of clothing fell 4.1 percent in the retailer’s most recent fiscal year, though figures this month showed a 10 percent fourth-quarter increase after M&S promoted seasonal lines with ads featuring celebrities like Dannii Minogue.

Bolland will also need to evaluate M&S’s international division, which Rose has identified as an area of long-term growth. The retailer gets about 10 percent of sales from outside the U.K. and aims to increase that proportion to about 30 percent, led by expansion in India and China.

Bolland has worked in the consumer-goods industry all his professional life, spending two decades at Heineken. He managed the creation of the BeerTender, the first in-home system for draught beer that is now sold in more than a dozen countries. He also introduced Heineken Premium Light in the U.S., which currently ranks sixth in the U.S. import beer market.

The executive is also known for maintaining his composure when under pressure. One of Heineken’s largest purchases was Austria’s BBAG in 2003 when Bolland was on the board.

‘Always Kept His Cool’

“At the end of a deal when you’re under a lot of stress, you want to sign, everybody’s tired and you’ve been up for days, he always kept his cool,” said Manel Vrijenhoek, former head of media relations at the Dutch brewer.

According to Owen, Bolland is “very suave, dressed well and very good with PR.” The new CEO is approachable to staff and regularly dined out with senior management at Morrison, Owen said. A fan of English soccer team Leeds United, the CEO always set aside one night a week to watch a European game, he said.

The executive has notable stamina for the job. As a student, Bolland rarely missed a party or a chance to be first back in the lecture hall the next morning, according to Rob ten Heggeler, a board member of NIBC Bank NV and a friend of Bolland since their student days at the University of Groningen.

“He’s a real die-hard,” Ten Heggeler said. “Our credo was ‘nil or a hundred.’ If you go for something, you go for it for the full hundred percent.”

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

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