What’s waiting in Marc Bolland’s in-tray at M&S?

Most people will have spent Monday night with their feet up enjoying what was left of the bank holiday. For Marc Bolland, it was spent in Marks & Spencer’s Paddington HQ preparing to get to grips with the task in front of him ahead of his first full day in the job.

The debonair Dutchman inherits a business in reasonable shape and has a three-month induction period to get around M&S, visiting stores and suppliers, before Sir Stuart Rose steps down as executive chairman. But, while the performance of the retailer has picked up over the past six months the new boss will need to get his head round some big questions.

Today we take a peek inside Bolland’s in-tray to look at the issues he faces as he takes up what is probably the toughest job in retail.

Food

M&S has fought hard over the past year to lift sales at its food business, lowering prices and running innovative promotions. The hard work has helped to arrest the previous year’s slide and the retailer delivered its sixth consecutive period of improved food performance in its fourth quarter, with UK like-for-like sales up 1.8%.

But food remains tough, and this month’s Nielsen grocery market share figures show M&S’s improved performance has levelled out, while rival Waitrose continues to power ahead and has stolen M&S’s reputation for innovation and quality. M&S has rolled out its branded food trial to more parts of the country but its position on whether branded food will be a significant part of the offering remains unclear.

Oriel Securities analyst Jonathan Pritchard says M&S’s price investment is starting to bear fruit, but that Bolland should prioritise the food recovery process.

Some City analysts question whether food is heading in the right direction. Arden Partners analyst Nick Bubb says Bolland needs to reconcile the price and value messages in food.

“M&S needs to adopt a more consistent model and restore its price credibility,” he says.

“It is hard to wean a business off price promotions. The promotions tend to attract lower-quality customers; and then the store’s traditional customers start to ask whether they have been paying too much previously.”

Fashion

M&S has been on a strong run in clothing and has won back market share, but analysts remain convinced that its array of sub-brands is confusing to the customer. More fundamentally, it faces the challenge of whether, in today’s crowded and fragmented fashion market, it can continue to be all things to all shoppers through its ‘good, better, best’ price architecture.

In its fourth quarter it delivered a record clothing market share rise and Rose said that self-help initiatives were beginning to pay off in terms of “good product, getting the basics right and innovating”. In the 12 weeks to February 28, its share rose from 10.8% to 11.9%, the biggest single movement recorded by M&S in a 12-week period.

However, Bubb says one of Bolland’s first jobs will be “to ask clothing boss Kate Bostock what the difference between the brands is, and who buys what”. Collins Stewart analyst Greg Lawless agrees, saying there are “too many sub-brands, which confuse the customer”.

He says Autograph “has been dumbed down” as the business pushed more products into this sub-brand, and that Per Una “had a clear differentiation under George Davies, but this seems to have been lost”.

Many believe Bolland does have the ability to get to grips with clothing, despite his lack of experience. Pritchard says: “Too much is made of Bolland’s lack of clothing experience. As we know, he didn’t have any experience of food before he arrived at Morrisons, yet nobody could argue that he didn’t do a good job there.”

International

Rose has identified international expansion as a long-term goal for M&S, but it will be a slow journey.

In its fourth-quarter figures, international sales fell 5.9% as a result of difficult trading conditions in Ireland and Greece, while exchange rates also had an adverse impact.

M&S has about 300 stores overseas, in markets such as China, India, the Middle East and Russia. Historically, M&S operated company-owned stores across continental Europe but the previous management abandoned the business in 2000. Rose has said previously that he regretted M&S’s decision to exit its European stores, since he believes the brand has strong resonance on the Continent.

But M&S has suffered international setbacks, most notably with its disastrous entry into China. Just three months after launching a flagship store in Shanghai (pictured) it fired its managing director in China after complaints about the availability and range of products.

A key objective of M&S’s 2020 plan is to boost international business. It wants international revenues to account for 15% of group revenues by 2011.

Lawless says: “The business should continue to expand in both emerging markets and through franchise stores but should stop short of opening more company-owned stores, except in China.” He adds that, while international “won’t move the dial soon”, the retailer “needs a platform for the future”.

While Bolland does not have international retailing expertise, his 20 years at Heineken will stand him in good stead.

Stores

M&S has invested heavily in refurbishing its store estate in recent years, with about four-fifths of shops revamped. There have been quibbles about the cost and return on the spend, but that is in the past and the question facing Bolland is whether the stores are in the right locations.

M&S has more than 600 stores, ranging from the giant Marble Arch flagship to its Simply Food chain, but Rose has admitted that the company was too slow to adapt to the shift to out-of-town locations.

At the same time, many of its in-town stores have found themselves anchoring increasingly tired high streets and some have been converted to clearance stores. The company has also had to prune the number of Simply Food stores after over-expanding the concept, closing 25 last year.

Closing stores is a strategic hot potato, but Bolland will need to decide whether the future of M&S lies on the high street of every town in the UK, or - at a time when fashion retailing out of town seems to be burgeoning again - it needs to make a renewed push to extend its footprint on retail parks.

Bubb says M&S’s historic portfolio makes it difficult to keep up with its supermarket competitors in terms of store locations. “Most of M&S’s portfolio is landlocked, with no car parks,” he says. “Perhaps it would do better to concentrate on the retail park stores, but that’s a tough call to make.”

Multichannel

M&S has made real strides in multichannel since relaunching its site on Amazon platform with innovations such as ratings, reviews and video, making the offering one of the stronger efforts from a major retailer.

Some analysts have expressed concerns that, with Amazon moving into ever more categories, M&S might find itself exposed to a fast-growing competitor, but those involved say that the arrangement gives Amazon no access to sensitive information.

Yet there still remains much to do, most notably with food online. Rose has resisted such a move, on the grounds that it would be difficult to make money, but both Waitrose and Ocado have taken advantage of up-market food shoppers’ desire for the convenience of home delivery. Bolland also resisted selling online at Morrisons but, given the erosion of M&S’s market share in food, he has at least to consider offering food online as an option.

There is also a lot of opportunity in cross-channel services, particularly as many stores are unable to offer the full M&S assortment.

The relaunch of its collect-in-store service shows that there is potential to develop this side of its multichannel offer.

Bubb says putting food online must to be a priority and that M&S “should have food online by early next year”.

Pritchard says that M&S has fallen behind by not offering food online and that Bolland needs to “take a good look at it early on”. He adds, however, that Bolland does not have experience of online shopping, so it may not be his first priority.

Beyond Retail

At this year’s Retail Week Conference, Rose raised the possibility of M&S becoming an “umbrella brand”, offering a diverse range of products and services beyond its core retail offering. It has already dipped a toe in the water with services such as travel insurance, holiday money and, most recently, energy and home insulation.

M&S has barely scratched the surface compared with Tesco, for example. Yet, with the strongest brand in UK retail, brand extensions have huge potential to add incremental revenue. The question is whether Bolland will see this sort of growth as a priority, or continue to do what he did at Morrisons, which was to concentrate on the core proposition - in Morrisons’ case, selling grocery through physical supermarkets in the UK - and avoid any distractions.

People

Bolland needs to ensure he gets the top team on board straight away. Finance director Ian Dyson, food boss John Dixon and general merchandise supremo Kate Bostock were all put through a gruelling and very public assessment process, even though few observers thought any of them had a chance of getting the chief executive’s job.

Bolland will need to use all his considerable charm to win them over. This should be straightforward enough in the case of Bostock, whose clothing division is on fine form and who last month told Retail Week she never really wanted the job. Dixon, too, was always an outside bet, but it will be crucial that his vision for food fits that of Bolland. The big question will be over Dyson, who harboured genuine ambitions of becoming chief executive. Will Bolland be able to strike up a sound working relationship with him?

Infrastructure

The plans to overhaul M&S’s infrastructure need to be watched closely, according to City analysts, who see them as key to Bolland’s strategy.

Credit Suisse analyst Tony Shiret says Bolland “needs to get a handle quickly on how the big projects like infrastructure are coming along and make sure that they’re moving in the right direction”.

As part of the 2020 plan - devised by Rose and finance director Ian Dyson - M&S is to spend £1bn on upgrading the supply chain and IT to deliver £250m a year of benefits by 2015/16.

Yet some question the wisdom of parts of the plan. Lawless points out that M&S is behind its competitors, which have all moved from a regional distribution structure to a national one in clothing. He says M&S handles products at least twice, at about 100 sites across the UK.

The plan is to move to four new national distribution centres over the next four years with single handling of product. The first is in Bradford - opening in July - but Lawless questions why the first of the centres is being used for furniture, online wine and slow-moving grocery lines, and not for clothing. He says: “Surely this isn’t the biggest margin opportunity for the company.”

The question for Bolland is whether the capital expenditure could be made in a better way.

“With a fresh pair of eyes and an inquiring mind, you have to wonder whether the capital expenditure on infrastructure needs to be spent in the way that the current plan suggests,” says Lawless. “If it does, perhaps Bolland can speed up the infrastructure developments. However, the company has a stretched balance sheet, unlike the situation he inherited at Morrisons.”

Culture

M&S has its own distinct culture and, with Rose having spent so much of his career in the business, it is no surprise that in many respects the company is run in his image, with what some describe as a rather ‘macho’ atmosphere. Rose has promoted M&S lifers like John Dixon and Steve Rowe - both of whom have spent their whole careers at M&S and followed their fathers into the business - through the ranks to senior positions, reinforcing the M&S way of doing things.

At Morrisons, Bolland showed his ability to modernise while embracing the best of the company’s traditions, keeping some of Sir Ken Morrison’s closest lieutenants in senior roles while opening up the business. As a consummate diplomat, he is sure to do the same at M&S, but it is an intensely political organisation and he will need to tread carefully.

Rose’s high personal profile has at times been a double-edged sword for M&S. But on the whole it has worked in its favour, with his charisma and passion for the business playing well with customers and the sometimes vociferous army of small shareholders alike. Bolland is likely to relish the profile that comes with the role, but will find all aspects of his personal and professional life under scrutiny.

Shiret says it will be difficult for Bolland to do anything before Rose departs. He says: “Whatever Bolland changes early on will mean he thinks Stuart’s strategy was wrong and that will be difficult to do with him still there.”

But Pritchard says: “Stuart will leave and, unlike Ken Morrison, won’t be phoning investor relations every few months for a meeting. He will leave it to Bolland. However, Bolland would be wise to book in a dinner with Stuart every six months or so for an informal chat with someone who understands the challenges of the business.”