M&S and Debenhams’ recovery efforts fail to deliver


Investors’ worst fears of more profit warnings at major retailers may have been averted on “Super Thursday” but big chains including Marks and Spencer and Debenhams provided little evidence that their turnround plans were yet working.

Both companies have embarked on ambitious transformations designed to shift sales online, shed unprofitable and often uninvestable space and widen their appeal.

The efforts of Debenhams’ boss Sergio Bucher, who unveiled his “Redesigning Debenhams” in 2017 were cut short on Thursday after he and chairman, Sir Ian Michael Cheshire, were forced off the board by 29 per cent shareholder Mike Ashley.

M&S chief executive Steve Rowe launched his five-year plan to rejuvenate the high-street stalwart in 2016.

Yet sales at both companies are falling: at Debenhams, they fell by 3.8 per cent in the six weeks to January 5, with online revenue rising a relatively anaemic 6 per cent. Total clothing and home sales at M&S were down 4.8 per cent in the 13 weeks to December 29 — even though online sales grew by 14 per cent, driven by improvements to the website and investment in logistics. Shares in both companies have fallen, dramatically so in Debenhams’ case, which lost another 15 per cent on Thursday.

Unlike Debenhams, M&S got through 2018 without issuing an explicit profit warning. But analysts expect little in the way of profit growth until the end of the five-year programme that has already included a big overhaul of management and dozens of store closures.

Other chains are also making slow progress. Halfords, the car parts and bike retailer, launched a new service-led strategy last year, but on Thursday said profits in its current financial year would be significantly lower than it had projected as recently as November, sending its share price plummeting by 25 per cent.

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Kingfisher, the DIY conglomerate, is more than two years into its latest five-year plan — but its shares have also fallen and few investors believe that the additional £500m of annual profit that was promised will materialise.

The obvious reason for the apparent lack of progress is that UK consumer confidence has weakened. There have been sector-specific challenges in markets ranging from DIY to cycling.

“The speed at which activity generally has moved online has taken many by surprise,” said Tony Shiret, retail analyst at Whitman Howard. For many legacy retailers, he added, moving online was something they felt they ought to do rather than something they embraced. Their defence of existing market share contrasted with the aggressive customer acquisition strategies of online-only rivals.

Moving sales online requires other aspects of the business to be rethought. M&S has had to make big remedial investments in both its website and its online distribution centre, which in previous years failed to cope with peak-season demand.

John Lewis, which began investing heavily in online capability when it bought the UK business of buy.com in 2001, has not been able to ease off. Its chairman, Charlie Mayfield, reiterated that profits would be substantially lower this year partly because of heavy investment in IT.

Selling online also requires expertise in social media and “influencer” marketing rather than traditional Christmas television adverts.

Store estates have been another headache. Too many shops on long, expensive leases and in unsuitable locations became a big problem for Debenhams, House of Fraser, M&S and many others. “Property leases are not easy to get out of — and the ones you can get out of are probably the ones you want to keep,” said Mr Shiret.

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M&S and Debenhams have tried to move away from an excessive reliance on promotions. But a big part of Debenhams’ appeal to its customers was its “spectaculars” — one-day events that drove footfall to the stores. Suzy Ross, a senior adviser at Accenture, said the company risked alienating its core customers by cutting back on them.

“In a headlong rush to create new customer experiences — such as prioritising mobile and premium store experiences — losing sight of getting the product and proposition right for loyal, valuable customers has been costly,” she said.

A former senior manager at Debenhams said internal morale had fallen after a series of executive departures even before Thursday’s board shake-up. “[Mr Bucher] has essentially replaced all his senior management team and the CFO . . . it creates a constant state of upheaval and uncertainty,” the person said.

Executive-level turnover has been high at M&S too, with the heads of food and clothing among those replaced. Chairman Archie Norman has made no secret of his belief that the company’s somewhat complacent culture had to change.

Companies that took difficult decisions and made big investments earlier are doing better. Next, which now makes about half its revenue online, is one example — although Alan Custis, head of UK equities at Lazard Asset Management, pointed out that even the clothing chain guided for lower profits this year.

Tesco, which has been led by Dave Lewis since 2014, said on Thursday it had achieved its highest rate of Christmas sales growth in the UK since December 2009.

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Mr Rowe at M&S said there were “early signs of volume growth” in food and expected “more momentum under a strong new management team as the year progresses”.

However, he admitted there would be no let up in the reorganisation. “We have to make sure we don’t call victory early and shy away from the changes we need to make,” he added.



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