Jul 24, 2013
Moment of truth for Bolland as M&S's new ranges hit stores
Jul 24, 2013
Linger on the racks and Bolland could be out of a job next year; set the tills ringing and he may yet stay in the top post to reap the benefit of the firm's top-to bottom modernisation.
The Dutch national, chief executive since May 2010, is in the final year of a three-year, 2.3 billion pounds plan, addressing decades of under-investment to make M&S an international retailer connecting with customers through stores, the Internet and mobile devices.
So far his efforts have been insufficient to prevent clothing sales falling for eight straight quarters, despite earning him a bonus that rose 25 percent to 829,000 pounds in 2012-13.
Bolland has said the company's revival will be a step-by- step process but it has to start somewhere. So customer reaction to this week's deliberately more upmarket blouses, coats and dresses will be particularly important.
Redesigned stores are being rolled out across M&S's chain of 766 British outlets, while logistics and IT systems are being overhauled to improve product availability and complement a new web platform set to go live in spring 2014.
"We're transforming our business to secure future growth," said Chairman Robert Swannell.
For sure, Bolland has had some successes at the 129-year-old company. Its upmarket food business has enjoyed 17 consecutive quarters of underlying sales growth and contributes 54 percent of group sales; online sales growth is running ahead of the market and solid progress has been made overseas.
Yet group profit has been held back by general merchandise, spanning clothing, footwear and homewares, which has posted eight straight quarters of like-for-like sales declines.
Though Bolland, a former CEO of grocer Morrisons, has recently received several endorsements from his chairman, he has to deliver with the new ranges, particularly in womenswear.
"Investors will be looking for an upturn in general merchandise sales by the end of the year," one of M&S's top 10 investors told Reuters on condition of anonymity.
Getting womenswear firing on all cylinders is, according to M&S clothing head John Dixon, "the golden key to the golden door," given the halo effect it has on the entire M&S business.
Achieve strong sales of the autumn-winter ranges, followed by a better spring/summer campaign, and Bolland could potentially notch up pay and bonus awards of up to 5.7 million pounds in the 2013-14 year.
But failure to deliver will likely increase pressure for a leadership change and could encourage private equity or sovereign wealth fund suitors to take another look at a possible bid for M&S, long a rumoured takeover target.
Founded by Michael Marks as a Penny Bazaar in Leeds, northern England, in 1884, M&S now turns over 10 billion pounds, operating from nearly 1,200 stores in over 50 countries worldwide and employing almost 82,000 people.
It remains clothing and footwear market leader in Britain but its share has slipped to about 11 percent in value terms, eaten away by rivals such as Next, John Lewis and Primark, along with Internet-based sellers.
Management strife and the economic downturn have also taken their toll.
Yet M&S shares have increased 47 percent over the last year and hit a five-year high in May, reflecting its potentially improving prospects as well as bid speculation. They trade on 13.9 times forecast earnings, below Next on 14.7 times but ahead of Debenhams on 10.2 times, according to Reuters data.
Though M&S has posted two straight years of falling profits and analysts on average forecast just a 1 percent increase to 670 million pounds in 2013-14, they are forecasting jumps of 14 percent and 10 percent in the following two years respectively.
Also M&S's dividend, 17 pence per share in 2012-13, is forecast to rise 24 percent over the next three years.
Having peaked at 821 million pounds in 2012-13, M&S's annual capital expenditure bill will fall to about 550 million pounds from 2014-15, giving it a material improvement in free cash and investors the prospect of share buybacks and one-off payments.
"If such a fall in capital expenditure corresponds with steps forward in trading profitability, then M&S shareholders could be in for a demonstrably more rewarding time," said analyst Clive Black at brokerage Shore Capital.
Yet it is the goods in its stores which will make the difference between success and failure for Bolland.
The CEO is banking on a clothing strategy focused on higher quality and more style satisfying M&S's core 45-years-and-over customers while also appealing to younger shoppers.
M&S has promised longer hemlines, 80 percent more dresses with sleeves, bolder colours and more silk and cashmere.
Autumn/winter ranges unveiled in May won mostly positive reviews from analysts and the fashion press.
The collection will arrive in stores and online from Thursday with a full launch and advertising push in September.
Investors will want to see evidence of improvement when second-quarter sales are published on November 5, while a much improved Christmas performance to be reported in January is imperative for Bolland's survival.
"As long as they are moving in the right direction, which they appear to be in a lot of things, they have a good chance of making it work overall," said one of M&S's top 40 shareholders.
"The other thing that is slowly working in their favour is that the UK economy is starting to do a little better."
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