M&S’s Bolland May Have Year to Revive Clothing as Sales Slump

Marks & Spencer Group Plc Chief Executive Officer Marc Bolland may have only a year to prove he can revive Britain’s biggest clothing retailer after reporting a sixth straight quarterly drop in non-food sales.

Investor patience is likely to wear thin if the London-based company hasn’t shown any evidence of a revenue revival by the end of the next autumn and winter clothing season, according to Kate Calvert, an analyst at Seymour Pierce in London.

“He has a very tall order to try and sort out womenswear in particular,” said Calvert, who has a hold recommendation.

Bolland, 52, said yesterday that the performance of the company’s general merchandise unit, whose fashions have failed to win shoppers, was “not yet satisfactory” almost three years after he took the helm. Marks & Spencer shares fell as much as 5.2 percent to 351.6 pence in London today, taking them below the 366.5 pence at which they traded when Bolland started.

Marks & Spencer clothing is “frumpy, boring and expensive for what it is,” according to Louise Cooper, an analyst at CooperCity in London. “As a 42-year-old mother, I imagine I am their target customer, but they haven’t dressed me in years.”

Bolland is placing his faith in a new U.K. management team, led by former food chief John Dixon. Dixon replaced Kate Bostock as head of the general merchandise unit in October, while former Debenhams Plc CEO Belinda Earl was brought in as style director.

Buying Time

The products the new team have influenced won’t start to be seen in stores until July because of the length of design, supply and ordering times, the CEO has said.

“He bought himself time” with the management reshuffle and new hires, said Calvert. Still, the analyst said investors aren’t “going to be that patient beyond autumn/winter.”

Bolland opted out of the discount-driven market and offered fewer promotions over Christmas, protecting margins though weighing on sales. The strategy won support from some investors.

“They’ve taken a stance not to chase sales at the expense of profitability and we would support not just pursuing top line growth at all costs,” said Richard Marwood, a senior fund manager at Axa Investment Management in London, which is Marks & Spencer’s fourth-biggest shareholder. Still, Bolland’s performance “has not been fantastic,” Marwood said.

The CEO said promotional sales in the Christmas quarter were down 7 percent compared with a year earlier.

“What the new team has done is manage it very appropriately to protect our margin,” though the product was bought six-to-nine months ago, before they started, he said.

Growing clothing sales will be key to a longer-term recovery at the retailer, which faces increasing competition in its main market for women over the age of 40.

‘Magic Bullet’

“Clothing is never an easy thing to find a magic bullet on and they are still some way off finding that,” said Tim Green, who holds Marks & Spencer stock as part of the more than 26 billion pounds ($42 billion) he helps manage at Brewin Dolphin in London. “I think there is a feeling that strength of expertise at the top is not sufficient. There is an anxiety that John Dixon simply doesn’t have clothing credentials to cut it against some very seasoned competitors.”

Marks & Spencer products are “buried in a sea of merchandise” making customers do the work to find what they want, while the clothing is not seen “as a must have,” said Neil Saunders, managing director of research company Conlumino.

The CEO should focus on fixing the domestic clothes offer ahead of expanding the retailer’s overseas unit, said Green.

Bolland’s turnaround plan includes focusing on turning Marks & Spencer into an international, multichannel retailer. He plans to add 100 overseas outlets a year at the company, which CVC Capital Partners Ltd. explored taking private last year, according to people close to the matter.

Biggest Test

“I do think there’s an issue about pushing multi-national,” Green said. “It does test credulity since they need to get the U.K. right before they worry about international.”

Espirito Santo analyst Caroline Gulliver today cut her recommendation on Marks & Spencer to sell from neutral, citing “a high execution risk” of the changes being made.

The biggest test of Bolland’s strategy will be the success of the new clothing ranges, said Maureen Hinton, an analyst at Verdict Research in London.

“The proof is going to be when his management team actually delivers new product in the summer and that’s going to be critical for Bolland’s survival,” Hinton said.

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