Marks & Spencer Group Plc Chief Executive Officer Marc Bolland needs to revamp the U.K. retailer’s clothing brands and accelerate cost savings rather than pursue capital-intensive overseas expansion, shareholders and analysts said.
Bolland, who took charge of Britain’s largest clothing retailer on May 1, will outline his strategy on Nov. 9 following a six-month review. The 51-year-old, who succeeded Stuart Rose, has pledged a policy of “evolution not revolution.”
“The last thing we want them to do is go expanding like billy-o and over-extend themselves,” said Paul Mumford, a fund manager at Cavendish Asset Management in London, who owns Marks & Spencer stock. “Domestically, the whole of the company has to be looked at more closely. The next step is for Bolland to work on the growth they are slowly starting to see.”
Sales growth at Marks & Spencer has trailed rivals including Tesco Plc, the country’s biggest retailer, over the past five years as Tesco expanded its selection of non-food items such as 35-pound ($57) snakeskin dresses and 15-pound wedding bands. The stock has also lagged behind -- falling 4.7 percent compared with Tesco’s 35 percent advance in the period.
Bolland needs to sustain a recent revival in clothing sales growth and market-share gains by clarifying its branding in stores, said Panmure Gordon & Co. analyst Jean Roche. Investors would also welcome a faster cost-reduction plan than the 250 million pounds in savings by 2015 outlined last year by former Finance Director Ian Dyson in its “Project 2020,” Roche said.
Bolland, who spent his first months in the job meeting suppliers abroad and visiting stores, has a reputation for reviving businesses. Within two years of his arrival as CEO of William Morrison Supermarkets Plc, he turned a 250 million-pound loss into a record profit of 554 million pounds, scrapping the company’s century-old logo and introducing new store formats.
At Marks & Spencer, he’s starting with a new team of executives. Alan Stewart began in October as finance director to replace Dyson, who stepped down days after Bolland started. Robert Swannell, who helped defend the company against billionaire Philip Green’s 2004 takeover bid, will replace Rose as chairman in January. The company is also seeking new division heads for its Internet, international and homeware businesses.
Marks & Spencer’s sales of clothing rose 7.8 percent in the second quarter, a sixth straight quarterly increase, as men bought suits and cashmere knitwear. The company’s fall-winter advertising campaign, featuring Brazilian supermodel Ana Beatriz Barros, led to a record season in footwear and 1.8 million extra customers, the company said last month.
Reviving clothing “ought to be a good opportunity for Bolland to demonstrate his marketing prowess,” Royal Bank of Scotland Group Plc analyst John Guy said, in reference to the CEO’s former position as chief operating officer at Dutch brewer Heineken NV. Clothing and homeware sales account for 44 percent of Marks & Spencer’s annual sales of 9.54 billion pounds.
Marks & Spencer needs to improve its marketing to distinguish between its main brands, Guy said. The retailer could reduce the number of overlapping own-brands and purchase an existing one such as N Brown Group Plc for its plus-sized offering or private-equity owned women’s work and casual clothing retailer Hobbs, according to RBS research.
Improving the online clothing offering will also provide an opportunity for the retailer to expand internationally without operating more stores. That’s preferable to buying back stores in western Europe that the company sold a decade ago, Guy said. Marks & Spencer plans to repurchase some of the 38 stores in continental Europe that it sold in 2001, the Sunday Telegraph reported this week, without saying where it got the information.
Bolland should “invest more in driving online sales penetration abroad in a similar vein to Next Plc,” said Guy. Next sells its clothing online in 38 markets including a new website in Australia, helping boost sales at its Directory unit 7.9 percent in the third quarter, the company said this week.
Marks & Spencer has more than 320 owned and franchised stores in 41 countries including Ireland, Greece and China. International sales make up 10 percent of revenue, a proportion that the retailer plans to increase to 15 to 20 percent by 2011 with outlets in the Middle East, Europe and India.
Analysts are divided over the direction Bolland should take with the food division, where executive director John Dixon has added “Dine In” meals such as a Valentine’s Day dinner for two including a soufflé, champagne and scallops for 20 pounds.
The retailer reported comparable sales growth at its food business of 3.7 percent in the three months through Oct. 2, ahead of the 1.2 percent Tesco reported excluding petrol sales in the U.K. in the period through Aug. 28 and the 2.9 percent reported by J Sainsbury Plc on that basis. Marks & Spencer controls 3.6 percent of the grocery market, according to Nielsen market research, matching employee-owned Waitrose Ltd.
Roche says the retailer should consider larger-format outlets with hot-food counters like the ones they have at the Westfield shopping mall store in west London.
Credit Suisse’s Tony Shiret sees little growth opportunity in food, particularly the 350-store Simply Food chain.
“They tried to create momentum with the smaller formats of Simply Food, but I’m pretty sure they aren’t making money,” Shiret said. “One of the biggest issues is they are a relatively small market share player without momentum. I can see a place for the food business, but I can’t see how it’s going to grow.”
To be sure, UBS AG’s Adam Cochrane says Marks & Spencer should look overseas to drive future growth, especially as the U.K. implements budget cuts at the beginning of 2011.
“There is scope to move internationally, particularly China,” said Cochrane, who has a “buy” rating on the shares. “I’d view the European expansion plans in the maybe pile.”
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