The first crop of headlines along the lines of “has Marks & Spencer’s turnaround finally succeeded?” can be dated to about 2005. The struggle for relevance in the 21st century really has been going on that long. False dawns, relapses and various iterations of a “fix the basics” strategy has followed under multiple chief executives, most of whom thought they’d cracked it, but hadn’t.
It is why one should view the latest appearance of a mini-triumph – a return to the FTSE 100 index after a four-year absence – with a degree of scepticism. You never quite know with M&S. Context is also useful. Today’s share price of 224p looks nice against 127p in January, but the same price was first seen in 1987, according to Refinitiv’s data.
But here’s where credit is due: even half a decade ago, there was a genuine threat that M&S could go the way of BHS, Comet and Debenhams – high street names that seemed too big, or too familiar, to fail. “This business is on a burning platform,” said the chair, Archie Norman, in 2018, geeing up the troops but not exaggerating wildly. Demise now seems a very remote possibility.
For that, one should acknowledge that the restructuring job over the past five years, first under Steve Rowe and now under Stuart Machin as chief executive, has been genuinely different. It was more brutal than its forerunners – 9,000 jobs went during Covid, for example. M&S also got serious about shutting tired stores in the age of internet shopping, tackled its multi-year woes with unreliable warehouses, gave up on France and broke an internal taboo by recognising the merit in selling third-party brands, from Triumph to White Stuff.
“Of all the turnarounds I have been part of, this has been the slowest and most intractable, reflecting the deep-rooted nature of our problems and culture at the ‘old M&S’, but we are now at last seeing the reshaping of M&S take hold,” wrote Norman in this year’s annual report. Fair comment – and made fairer with this month’s upgrade to profit forecasts.
But let’s also remember another ingredient: even in the grimmest years, M&S always refrained from playing silly games of leverage with the balance sheet. It’s a significant factor, because nothing kills struggling retailers as effectively as mounting debts. Debenhams was hollowed out by private equity barons, and Sir Philip Green did the same to BHS via his (or his wife’s) extraction of dividends. Neither firm left anything in the tank.
Whether through stock market discipline or just common sense, M&S usually opted for conservative financing (give thanks that Green’s takeover bid failed in 2004). It was always able to take another last shot at root-and-branch reform. The “adjusting items” lines in M&S’s profit and loss account – such as redundancy payouts and store closures – add up to a £1.26bn over the past five years, a phenomenal sum even if it doesn’t all represent cash charges. It was affordable because the group stayed in the game, financing-wise. Stripping out lease liabilities, it had net debts of £356m at the end of its last financial year, versus pre-tax profits of £476m.
The reward is a depopulated middle-market in UK clothing. After the disappearance of BHS and Debenhams stores, and closures of some House of Fraser outlets, the competitive position looks stronger than it has done for years. On the food side, it helps that Waitrose is currently off the pace.
One long-term danger is that Next (market capitalisation £8.8bn v M&S’s £4.3bn) creates fresh pressures as it reinvents mass-market retailing with its online “platform” model. But M&S still has a reasonable expectation of reaching its medium-term ambition of 5% market share in UK food and 10% in clothing and home – it just requires an additional percentage point in each market. At that point, it really ought to be able to avoid the angst of the past quarter-century. Keep the financing sane and you always have a chance.
