Marks & Spencer needs a miracle to avoid dropping out of the FTSE 100 next week. The loss of its cherished blue-chip status after 35 years in the top flight will be a historic day for the index and the High Street.
Its stalwart status has diminished with a share price that has fallen from 723.5p 12 years ago to 192.25p at the close last night.
Chief executive Steve Rowe and chairman Archie Norman – dubbed the turnaround king for his resuscitation work at Asda and ITV – promise their five-year plan will see the business return to former heights.
But so far the profits, and the share price, have stayed on their downward course.
Profits have fallen from £1bn in 2007-08 to £523m in its latest financial year (2018-19).
Long-suffering investors might feel they should cut and run before things get even worse, or hold out for better times ahead.
Bosses have certainly promised an enormous array of fixes to the business since 2016.
More than 100 stores are being closed to consolidate the High Street presence into fewer, larger shops while moving a third of clothing and home sales online.
This is widely seen as a necessary move as a large retail estate – M&S has 1,000 stores – is no longer the asset it once was. It has also promised to invest in its website and IT, which bosses have admitted is years behind leading online operators such as Boohoo.
The clothes themselves have long been seen as dowdy and overly conservative, and unappealing to core female customers in their 50s and 60s as well as younger shoppers. To tackle this, TV presenter Holly Willoughby – who at 38 is younger than M&S’s core customer – was brought in to inject some glamour into the brand.
But Adam Tomlinson, of Liberum, said: ‘One-off, successful lines aren’t enough to drive a sustainable turnaround across the business. There’s a lot of investment required just to stand still as the competition increases.’
Buzz phrases such as ‘family affordability’ point towards lower prices, but for some industry-watchers this change underpins why in-shop changes are doomed to fail. Richard Hyman, an independent retail analyst, said: ‘M&S’s core customer doesn’t want young fashion, lots of man-made fibres or clothing that will fall apart after it’s been worn a few times – and she doesn’t mind paying for all that. I think in their plans for the future they’ve lost sight of that.’
In the food aisle, the plan is to convert M&S – known for its appeal to inner-city singles and office workers – into a supermarket that is enticing to families.
But M&S has long sold itself on quality, so it is easy to see why such a move might raise eyebrows even if punchy price reductions drive up sales.
The move that has caused the most controversy is the headline-grabbing £750m tie-up with Ocado, which it hopes will make it a major player in food delivery. It was funded with a £600m rights issue – when more shares are offered to existing investors – and a painful dividend cut to 10.5p per share.
Shares have since fallen 28 per cent suggesting there are serious concerns over the long-term profitability of the venture. Even one of the company’s house brokers, Morgan Stanley, questioned why it was entering the competitive, low-margin online world. As it stands, around 7 per cent of the country’s food is bought online, and growth is slowing, which all makes the Ocado move high-risk.
They hope skipping the need for large out-of-town stores will enable a wider range of products to be driven straight to customers’ front doors.
They also rely on data showing that many M&S customers already shop online, but currently head to rivals such as Waitrose, Tesco or Sainsbury’s for their main food shop.
Jonathan Pritchard, of Peel Hunt, said: ‘I think the Ocado deal could really galvanise the food business. It suits the M&S customer base perfectly.’
The company’s high-stakes bet is making some question whether bosses might split the company once the food delivery business shows signs of life.
In any case, the board have been keen to stress their changes will not bear fruit for some years.
The first opportunity for those signs to appear is in November, when interim results are published.
Clive Black, of another house broker, Shore Capital, thinks that investors should ‘sit on their hands’ to wait for signs the plans are working. And he says that Norman and Rowe have, at least, been honest about the fact that there isn’t a quick fix.