Marks & Spencer chief executive Marc Bolland came under renewed pressure this week, as analysts questioned how much time he has left as leader of the retailer following its disappointing performance over Christmas.
In the days after M&S revealed general merchandise sales fell 5.8% in the 13 weeks to December 27 – the 14th consecutive quarterly fall in non-food sales – analysts told Drapers Bolland is “skating on thin ice” and his “days are numbered”.
Bolland’s position was further questioned following the announcement on Tuesday that Morrisons is giving chief executive Dalton Philips the axe, after he oversaw the worst Christmas performance of the ‘big four’ supermarkets. Philips is expected to leave in March.
M&S put the fall in sales down to the unseasonably mild weather in October and November and problems at its distribution centre in Castle Donington, which was unable to keep up with orders over Christmas. Clothing sales fell 5.3%.
Bolland also explained that lower levels of discounting in December impacted on sales, but argued that it led to an improved gross margin – part of his key strategy. Despite the disappointing Christmas results, the profit forecast for the year to March 2015 remains unchanged at £640-£644m, a 3% increase on the year before.
The margin guidance for general merchandise remains +150 to 200 basis points.
While some investors expressed disappointment in the general merchandise results, they appeared to back Bolland’s overall strategy.
Bill Adderley, founder of homeware retailer and one of M&S’s big shareholders, with a 3% stake, said: “It’s a little bit disappointing, because this Castle Donington thing seems to be a big problem and hopefully they are going to get that sorted out. But they have had a bit of bad luck and you certainly can’t criticise any of the people there for their efforts.”
Another shareholder said: “It is good they held their nerve and didn’t resort to heavy discounting. The food performance was also respectable, they are working on improving the bought-in margin and you could forgive the weather issues. Ultimately it doesn’t change anything about our medium term outlook.”
But others said Bolland was on borrowed time. David Cumming, head of equities at Standard Life, which has an unknown stake in M&S (understood to be relatively small), told Radio 4’s Today programme on January 12 that Bolland had spent £2.5bn on the business, but with little return.
He added: “Marc Bolland’s been there for five years and over that period profits have actually fallen despite £2.5bn of capital expenditure, so I think the chairman and senior independent director at M&S are probably asking themselves whether his scorecard is acceptable and they should be asking M&S shareholders the same question. I think M&S has a lot of potential, but that has not been demonstrated by its results.”
Analysts generally agreed with this view. Retail analyst Nick Bubb said: “The demise of Dalton at Morrisons today hasn’t helped Bolland, as if people think Morrisons’ strategy is on the right lines and Christmas improved [for Morrisons] and Dalton was still sacked, where does that leave Bolland? There are no more excuses left and he is skating on very thin ice.”
He added: “In practice M&S may not make a move until Helen Weir arrives as the new finance director [this summer]. Steve Rowe [executive director of food] is probably now the internal favourite to take over, rather than the unlucky John Dixon [executive director of general merchandise].”
Conlumino’s senior fashion consultant Anusha Couttigane said: “Marks & Spencer’s turnaround has been much slower than it had hoped for. Marc Bolland is not a newcomer to the situation; he’s coming into his fifth year of leadership. With this in mind, I would say M&S is well behind in the metaphorical five-year plan.”
Honor Westnedge, lead retail analyst at Verdict Retail, said: “Following on from Morrisons’ decision, the M&S board will be prompted to ask more questions [of Bolland]. The terrible Christmas results beg the question: ‘Is the management team strong enough to make the tough decisions needed and rebuild its lost market share?’
“John Dixon understands both sides of the business, having moved from food to general merchandise, but M&S needs to consider external candidates that can bring fresh blood to the business.”
Another retail analyst said: “The problem has been compounded by the fact M&S has a very weak chairman [Robert Swannell]. The board of directors has very little real retail experience to allow it to make an informed independent judgement on Bolland’s performance.”
He added: “The City has given Bolland the benefit of the doubt time after time, but three major retail leaders were under tremendous pressure over the last year: Bolland, Philips and Tesco boss Philip Clarke. Bolland will go sooner rather than later.”
The analyst tipped former Sainsbury’s boss Justin King and Waitrose managing director Mark Price as potential successors to the M&S role.
M&S’s share price has risen by 32% from 340p to 450p since Bolland’s appointment in 2010.