Marks & Spencer CEO Bolland's Honeymoon May Be Over as Clothing Sales Drop

Marks & Spencer Group Plc (MKS) Chief Executive Officer Marc Bolland pledged in November to revamp his clothing business by becoming more fashionable. He won’t have much to show for the push when he reports sales tomorrow.

The retailer, which Bolland has led for less than a year, may say fourth-quarter sales at stores open at least a year fell 6 percent in the general merchandise unit, according to the average estimate of 15 analysts compiled by Bloomberg. That would be less than the prior quarter’s 3.8 percent increase and the worst performance since the third quarter of fiscal 2009.

The 52-year old Dutchman has sought to update his clothing department by eliminating underperforming brands and increasing marketing at others, including the Limited Collection. The line, which includes items such as a 49.50-pound ($80) halterneck jumpsuit, is aimed at winning younger customers who have shopped elsewhere for trendy items. With the “Only at Your M&S” campaign, which features models like Twiggy dancing at a pool party and on yachts in Miami, he’s promoting image and style.

“It’s not happening fast enough, they are still behind the curve, appealing to an older market,” James Monro, an analyst at Standard & Poor’s equity research, said by phone. “The more famous faces the better.” Monro rates the shares “sell.”

Bolland has also been hit by an increasingly cash-strapped shopper. The U.K. consumer has been less willing to spend since January, when a value-added tax increase took effect, and as higher oil prices knocked back spending power. Competitor John Lewis reported a sales decline of 3.8 percent in the week ended March 26, with fashion ranges being the hardest hit.

Late Easter

“From a macro point of view it’s tough,” said Jan Meijer, an analyst at ING Wholesale Banking. Focusing on brands “is a really good strategy, I’m excited about it and the multi-channel approach looks really amazing. Whether he can prove it remains to be seen.”

Sales growth will also be hit by this year’s late Easter, which will push business related to the holiday into the first quarter of the new fiscal year, and the fact that most of the post-Christmas sales fell in the prior quarter, analysts said. Those factors combined will reduce same-store sales by about 5 percent, Deutsche Bank AG’s Rod Whitehead estimates. He expects Marks & Spencer to say same-store revenue in the general merchandise unit declined by 8 percent.

Expanding Abroad

Bolland is making other changes to boost the business. He announced last week that Marks & Spencer is returning to France this year with a flagship food and clothing-department store on the iconic Parisian boulevard Champs-Elysees. He also hired former Tesco Plc executive Laura Wade-Gery to develop its online platform as the retailer seeks new ways to bolster sales.

The changes haven’t yet helped the stock. Marks & Spencer shares have slumped 7.2 percent this year, compared with the 6.3 percent decline of the FTSE 350 General Retailers Index.

“You could say the honeymoon is over because it’s time for him to prove his mettle,” John Stevenson, a retail analyst at Peel Hunt with a “sell” rating on the stock, said by phone.

Sales at the food unit have also stumbled. Growth probably slowed to 1 percent, the estimates suggest, from 1.8 percent in the prior quarter, the slowest rate in more than a year.

Marks & Spencer, which sells upmarket meals like a 3.99- pound beetroot and goat’s cheese risotto, has been among the hardest hit in grocery-store sales growth, which almost halved in the past four weeks, according to Nielsen research. Sales advanced 1.4 percent in the past 12 weeks, the second-slowest pace of the nine major food retailers, Nielsen said.

‘Value Perception’

“There is still a value perception issue at M&S relative to peers,” said John Guy, an analyst at Royal Bank of Scotland Group Plc in London. “It seems to me, unfortunately, that consumers are voting with their feet and shopping elsewhere.”

Waitrose Ltd., which offers similar quality produce to Marks & Spencer alongside its cheaper “Essentials” line, performed better than the larger chains, alongside discount stores Aldi Group and Lidl, the Nielsen report shows. Bolland, whose last job was turning around William Morrison Supermarkets Plc, is widening the food range by focusing on innovations such as the “Taste East” range of Asian-inspired nibbles, alongside the “Dine In for 2” dinner promotions for 10 pounds.

Marks & Spencer, whose products are mostly own-brand, appeals to shoppers seeking special meals with its focus on high quality food. That may have weighed on recent sales, along with the lack of an event such as Mother’s Day or Easter which attracts shoppers looking to buy a special treat, according to Mike Watson at Nielsen research.

‘Too Niche’

“M&S are once more exposed as being too niche for most shoppers,” Watson said. The next eight weeks may show a rebound as promotions increase around events like Easter, he said.

Bolland said in January that promotions were at roughly the same level as last year. RBS’s Guy estimates that the company is running promotions on as much as 45 percent of goods sold, compared with an industry average of about 39 percent, and that that will weigh on margins.

Still it’s not all bad news, according to Tom Gadsby at Matrix. “The newspaper headlines following the M&S update will undoubtedly refer to blood on the high street and a total retail collapse in the U.K.,” he said. “We prefer to keep a sense of perspective. This quarter is the least important for M&S, we expect a rapid rebound.”

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

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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