Marks and Spencer Group PLC (LSE:MKS) “has moved beyond proving its relevance,” according to departing chief executive Steve Rowe.
On share price movement alone, it would seem he’s the only one to believe that, with the shares down 69% since April 2016, the point at which Rowe took the helm.
But that may be a little harsh on the 54-year-old, particularly given he has been forced to navigate the two-year Covid catastrophe and latterly the cost of living crisis. These factors alone have hit consumer-facing businesses such as M&S hard.
A quick before-and-after comparison of Marks' financial performance doesn't paint a particularly flattering picture.
Revenue six years ago, prior to his arrival, was at £10.6bn, compared to £10.8bn reported today, while profit before tax (PBT) has fallen by roughly £90mln to £391.7mln.
Although, compared to profits in 2017, his first full year in charge, there has been drastic improvement, where PBT was £176.4mln.
However, his legacy may have been to tackle the structural issues that have dogged Marks for decades and may only bear fruit after his departure.
Poor store layout
One of the main problems with M&S prior to Rowe’s arrival was the store format.
Richard Hunter, head of markets at Interactive Investor, goes as far as saying that the store format meant the clothing unit was “not even crossing the mind of new shoppers.”
Ross Hindle, an analyst at a research house Third Bridge, adds that the clothing part of the business had two major issues.
Firstly, the actual store layout was “not well thought out and planned from an aesthetics point of view.”
Secondly, on the product side, the offerings were not perceived well by consumers, and it found itself in a “no-mans-land for fashion.”
From a price perspective as well, Hindle adds, there was a lack of clarity for its clothing products as to whether they were value items or on a mid to high scale.
Its online presence, or lack of it, was also an issue, meaning customers didn’t have an alternative to the poorly laid out store.
Essentially, the store format did little to entice customers in, and even less to keep them in there.
Food turned around, clothing on the way
So, if the store format was the company’s major problem, what’s been done to rectify this problem?
Well, according to Hunter, both food and clothing have “received some of the care and attention which had been missing.”
“There has been a revamp of stores into a new format, coupled with store closures in lesser performing areas.”
Better product placement, utilising space and improving the product offering have all helped turn the performance around, according to analysts.
M&S’s food sales were up 10.1% compared to pre-pandemic levels, and the strong performance was supported by data from Kantar, which showed that it continued to be the best performing UK grocery chain for the 12 weeks ending 20 March 2022.
The company achieved this in several ways, aside from improving store layout, according to analysts.
Its partnership with Ocado gives it a strong online presence, while the lockdown opened the eyes of consumers to its Dine-In range as an alternative to eating out.
Importantly, it has moved away from being viewed as one of the more expensive options on the High Street and now caters “for most tastes across a range of prices,” according to Hunter.
Clothing, however, has been slightly more difficult to master for Rowe, although it has shown recent signs of promise.
Clothing and home sales grew 3.8% compared to 2020, with online clothing and home sales up 55%.
According to Julie Palmer, a partner at corporate recovery firm Begbies Traynor, the pandemic and working from home pattern may have helped with this.
Consumers are less likely to go shopping for suits and shirts, but rather something more comfortable that can be worn around the house.
M&S likely spotted this trend, which is supported by Russ Mould, investment director at AJ Bell, who suggests it is a “big seller of athleisure” as well as providing better value products in areas like jeggings and jeans.
As a result, it’s better placed to ensure a stock turnover, rather than having to discount items to shift them like previously.
So, how’s Rowe done?
If Rowe was to get a ranking for his job at Marks and Spencer, Hindle would give him an “above average” score.
He has transformed the store layout, expanded the food offering to target more customers and made some minor headway in improving the clothing business.
However, the share price has failed to impress, and headline performance hasn’t changed too much since he took over.
Rowe has set the foundations to improve, but warnings of further headwinds leave his successors with a difficult job in the current climate to take Marks and Spencer’s back to its lofty heights in terms of share price in 2007, where it was trading at above 700p.