Marks & Spencer PLC Chairman Luc Vandevelde couldn't be more blunt. The 48-year-old Belgian promised to reverse M&S's flagging sales and falling profits by 2002 or else he would resign. But seven months into the top job at Britain's biggest retailer, he is having second thoughts. Despite changes ranging from cutting staff to redesigning stores, M&S sales are still shrinking, and its share price is plunging. Turning around the once beloved Marks & Sparks, Vandevelde says, is proving "more difficult than I expected."
Desperate times call for drastic measures. On Sept. 18, Vandevelde ousted three executive directors, including 29- year M&S veteran and CEO Peter Salsbury. It's the fifth management shakeup in two years and by far the biggest in M&S's 116-year history. Vandevelde, who earned his spurs as the No. 2 at France's Promodes Group, Europe's second-largest retailer, will assume Salsbury's duties. Determined to inject new blood into M&S, he recently picked 40-year-old Roger Holmes, currently the head of electronics at rival British retailer Kingfisher PLC, as managing director for British retail. Outsiders expect Holmes, who has yet to be released from his Kingfisher contract, to become the next CEO at M&S.
The management shifts are the latest move in Vandevelde's plan to reinvent the ailing retailer. Arrogant and slow to change, M&S has lost market share to Wal-Mart Stores Inc. on the low end and seen its fashion-conscious customers drift over to specialty stores such as Gap Inc. and Spain's Zara. To recoup, Vandevelde wants to modernize M&S's fuddy-duddy image and lure in a younger, hipper clientele without alienating its core middle-aged customer base. Top-name British designers such as Betty Jackson and Katherine Hamnett have been hired to develop a new upscale label. M&S is spending $84 million to redesign 21 stores, making them brighter and more spacious. Vandevelde has also reversed M&S's long-standing policy of no advertising with a $28 million campaign featuring a nude female model.
In a major move to counter Wal-Mart, M&S in October will open the first of a series of discount stores known as Marks & Spencer Outlet. It also has developed e-commerce alliances with partners such as Microsoft Network and the BBC to sell merchandise online. Longer-term, Vandevelde says he would like to reduce M&S's dependence on clothing sales. He wants to expand into areas such as personal finance where M&S already offers credit cards, insurance, and pension products.
It's an ambitious strategy, but the market hasn't bought it. The company's shares have barely budged since the new management changes were announced, and at $3 per share are trading close to a 10-year low. Analysts fear that M&S has lost its way by trying to be all things to all consumers. "It's likely to take a good five years" before the company makes a real recovery, says Goldman Sachs & Co. European retail analyst Keith Wills.
If Vandevelde is to achieve his goal of a two-year turnaround, further downsizing is needed at M&S headquarters and its 279 British stores to offset the decline in sales, analysts say. Clothing sales, which accounted for more than half of M&S's sales of $11 billion last year, are down an estimated 1.4% for the six months through September.
VEILED THREAT? The weak sales figures are widely viewed as a veiled profits warning. M&S's consensus earnings forecast for this year has been cut by 10%, to $695 million, a far cry from the $1.5 billion in earnings M&S reported in 1998. Meantime, M&S's market value has shrunk from $25 billion to $8.5 billion.
Not even a takeover artist may materialize to take a shot at turning the company around. British entrepreneur Philip Green made an unsuccessful play for M&S last February. But these days, finding a potential buyer is increasingly unlikely. Renewed competition from abroad has hurt rival British retailers that don't have the resources to make an acquisition. Meanwhile, foreign rivals are unlikely to want to acquire a troubled retailer in a low-margin market such as Britain.
At least for now, M&S's fate remains in Vandevelde's hands. But he may need that letter of resignation after all.