Rival retailers and analysts have dismissed Marks & Spencer’s vaunted turnaround as “smoke and mirrors”, saying it continues to decline as competitors succeed.
The company this week published results for the year to March 29, showing that underlying pre-tax profit fell 3.9% to £623m – for the first time dropping below rival Next, which made £695m.
Group sales climbed 2.7% to £10.3bn, while UK sales rose 2.3%. This was powered by food, however, with general merchandise, which is mostly clothing and where much of the focus has been in the last 12 months, flat.
Chief executive Marc Bolland – who will not receive a bonus for the period – said the performance showed that green shoots were appearing as a result of his “step-by-step” approach of addressing quality and style.
But one womenswear boss told Drapers it was “all smoke and mirrors”, highlighting the success of competitors such as John Lewis and Next as evidence of the wider market performance.
She noted that M&S still faced issues over quality – for example, the famous pink coat, which was recalled after press-stud fastening came off some units – and added: “The PR machine seems to be quite far removed from reality and the rest of the high street, where growth is happening. If you make great product, you don’t need to discount.”
M&S’s new focus on sourcing – which Bolland believes will yield 80 basis points in gross margin –was “at odds” with the quality mantra, she added. Another senior retailer agreed, saying there was “huge risk to the business” and long-term costs would outweigh short-term gains.
A third said ex-Next supply veteran brothers Mark and Neal Lindsey, who have joined as sourcing directors, would help chop down unnecessary costs, but noted it was “not all about price – it’s about delivery, service, quality. Anybody can get something cheaper if they go to a cheap source, but that doesn’t mean they will be reliable”.
He noted there was scope for reducing markdowns if M&S could hold its nerve: “There is a fair amount to be had from that, so it could be a big old slice of the cake if [Bolland] gets it right, but it has got to stop having these Sales. I thought he was going to turn the tap off last year, but I think Marc [Bolland] has been running them to drive sales, without understanding the impact on profitability.”
He also flagged Next’s performance, saying its profits – up 11.8% to £695.2m in the year to January 25 – were achieved without selling food, which now makes up more than half of M&S’s turnover.
Analysts were similarly nonplussed. The Economist Intelligence Unit’s chief retail and consumer goods analyst Jon Copestake said: “With Next now overtaking M&S in terms of profit, many will view the culmination of the current turnaround strategy to have been underwhelming.”
Independent analyst Nick Bubb dubbed as “cheeky” M&S’s press release headline – ‘From transformation to delivery’ – and added: “M&S certainly needs to focus on delivery in the new year, after a lot of investment and a lot of talking.”
Espirito Santo’s head of general retail Tony Shiret agreed: “These results continue the pattern of a moderate level of forecast slippage, and we expect investors to remain sceptical until clearer trends can be demonstrated.”