Shareholders need to hear more than just contrition if they are to believe in the future of M&S
Another day, another bleak set of results from a struggling high street retailer. This time it was the turn of M&S to take centre stage, reporting falling food and fashion sales and pledging to leave “no stone unturned” in its bid to restructure the business.
Blighted by rising costs, more competition, and major changes in the way that people are shopping, M&S yesterday admitted for the umpteenth time that it too must come to terms with the retail challenges that have already claimed the likes of Toys R Us, Poundland and House of Fraser.
Boss Steve Rowe tried to keep investors onside with an honesty-is-the-best-policy approach, offering a frank admission over the company’s "silo-ed, slow and hierarchical" culture. His rueful tone comes several months after chairman Archie Norman admitted the firm had “no God-given right to exist”. But have such remorseful remarks calmed City jitters, or exacerbated them?
Analysts remain cautious over whether M&S is a value trap or value opportunity. The retailer has maintained its dividend, but despite Rowe’s confidence in his turnaround plan, investors seem sceptical, with shares taking a not insignificant knock yesterday.
Promises to sell off huge swathes of the M&S estate – in its last report the retailer said it planned to close 100 stores by 2020 – have certainly been welcomed by shareholders. High-fixed costs from long leases on vast amounts of space have crippled department store giants, along with an oversupply of product that simply isn't shifting. One Debenhams insider recently admitted that shopping in the beleaguered department store was like “wading through a jungle”.
Yet the problems facing M&S go beyond having too much space and product. Analysts feel that rather than trying to be everything for everyone, retailers like M&S need to hone in on their core brand and their core customer. The success of Primark and Ted Baker have shown on either end of the spectrum that there is a future in physical stores, but both have had to embrace change. And with discounters such as Aldi and Lidl now taking away sales at M&S in its food business, change is more urgent than ever.
While M&S has seen its share price halve since 2015, investors are not yet abandoning all hope for the company. City patience is wearing thinner and thinner, however, and if M&S cannot build itself a new identity soon, Rowe’s contrite remarks will sound as meaningless as those of his predecessors.