With Rose leaving M&S, will new chief blossom?

LONDON BRIEFING: Marc Bolland’s main challenge will be to return the retailer to sustainable profit growth

LONDON BRIEFING:Marc Bolland's main challenge will be to return the retailer to sustainable profit growth

SIR STUART Rose and his successor, Marc Bolland, have made very different starts to their careers as chief executive of Britain’s largest clothing retailer.

When Rose, then plain “Mr”, was parachuted in at Marks & Spencer over the May bank holiday weekend in 2004, his immediate task was to see off the audacious £9.1 billion (€10.6 billion) takeover approach from Monaco-based retail billionaire Philip Green. There was no time to learn the ropes and precious little time to come up with a strategy to restore the fortunes of the high-street retailer.

In contrast, Bolland, who began his new role at M&S at the start of the month, is enjoying an eight-week induction at the group and is not expected to outline his vision for its future until the autumn. He was thus very much in the background yesterday when Rose, executive chairman, delivered his final set of full-year figures for the group before he steps down.

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Rose’s valedictory results were a long way short of the £1 billion profit M&S achieved in 2007/2008, briefly recapturing the glory days of a decade earlier when it became the first British retailer to break the £1 billion profit barrier. But yesterday’s figures were at least at the top end of City expectations, with a 4.6 per cent increase taking the group’s underlying annual profits to £632.5 million. At the pretax level, though, profits fell from £706.2 million to £702.7 million. Sales were up 5 per cent at £9.54 billion.

Rose said M&S had made a satisfactory start to its current year, although he was clearly cautious about the state of the economy and the year – or years – of austerity ahead.

He declined to comment on the new coalition government’s widely expected plans to raise VAT from 17.5 per cent to 20 per cent and possibly to extend it to items that are currently exempt, such as food, which would have a huge impact on M&S’s business.

“I think we will have to take our medicine,” he said.

Although Bolland is not facing a hostile bid, the economic background is much tougher than when Rose took the hot seat six years ago and there are huge challenges ahead for him, not least of which is that Rose will be sitting in the chairman’s office until a successor is found.

While Rose’s experience will no doubt be invaluable to Bolland in the early stages of his tenure, the new boss will be understandably keen to see Rose move on before his formal departure date of March 2011.

But that all depends on securing a suitable candidate. One leading candidate, Roger Carr, the former Cadbury chairman, is recently thought to have decided against taking the job.

Rose’s decision to take the chair at M&S contravened corporate governance guidelines and still rankles with investors, who are keen to see a successor in place by the group’s annual meeting in July, allowing Rose to depart and Bolland to get on with the job on his own.

City analysts have welcomed Bolland’s arrival at M&S, although there is some concern at his lack of experience in the fashion industry. However, he successfully turned round Morrisons despite having no experience of the supermarket industry and they are hoping for a rerun at M&S.

But analysts warn that radical action will be required if the group is to rid itself of its reputation as a “boom and bust” retailer – a new chief executive moves in, suppliers are squeezed, the figures improve but then performance tails off again.

Bolland’s real challenge will be to return M&S to sustainable profits growth.

He has a raft of operational and structural issues to address, all set against a deeply unfavourable economic background.

M&S customers are getting older and the retailer is struggling to woo younger ones into its stores. In food, its performance has lagged well behind the industry, with sales creeping ahead by just 0.3 per cent over the past year, despite food price inflation. It has failed to develop an online food operation, putting it at a serious disadvantage to its rivals, particularly Waitrose.

Bolland must decide how overseas expansion should be tackled; whether M&S should introduce branded goods into its stores, as it has done in food; and whether there are too many sub-brands in clothing.

Are there too many stores, given the increasing importance of online retailing? Should it rectify its failure in food delivery by buying the Ocado online grocery business used by Waitrose? And should it launch a rights issue to clear some of its £2 billion debt and help pay for a much-needed overhaul of its infrastructure?

Given all those issues, it’s probably just as well Bolland has until the interim results statement in November to come up with some answers.


Fiona Walsh writes for the Guardiannewspaper in London

Fiona Walsh

Fiona Walsh writes for the Guardian