Marks & Spencer’s new Chief Executive Marc Bolland needs to consider "radical measures", including a link up with online grocer Ocado to get M&S groceries to more shoppers and a rights issue to pay for distribution network improvements, according to City retail experts.
The group, which is expected to unveil a 4% rise in full year pre-tax profit to £628m tomorrow, needs the changes to ensure smooth profits growth, according to analysts at Investec Securities. On Friday, it released a five-point plan called "Marc's Manifesto" which stated, "Radical measures are required to take the business through the next decade in a form that will deliver sustainable growth rather than cyclical swings."
Profit growth at M&S is lagging behind rivals Next, John Lewis and Debenhams, and just two years ago it made more than £1bn. However, its performance has been hit hard by the recession, cheaper clothing rivals and weak performance from its food business in the face of stiff competition from Waitrose. Bolland is expected to announce the results of a strategic review at the retailer's interim results in November.
Investec analysts said Bolland faces a tough task to haul the business back to its best. The problems Bolland faces include "creaking infrastructure, competitive threats in food, the erosion of store returns as online growth accelerates, and the battle for market share in mid-market clothing." The broker urged him to launch a £700m rights issue to cut M&S's £2bn debt pile and fund investment.
Investec said Bolland should turn M&S into a full-line grocer, stocking branded foods "to see off the Waitrose challenge", otherwise it will "be at risk of terminal decline". Some 200 M&S high street stores should be converted into supermarkets, with collection points for online clothing orders and new services such as post office facilities. They also say the new M&S should buy out its contract with Amazon giving the US group first refusal on operating an M&S food home delivery service and instead do a deal with Ocado, either alongside or replacing Ocado's current link with Waitrose.
Meanwhile, Roger Carr, the former chairman of Cadbury, has ruled himself out of the running to become chairman of M&S. The group is currently putting the final touches to its shortlist for the chairmanship, and hopes to name a successor by the end of next month. Carr was thought to be one of the leading contenders to succeed Sir Stuart as chairman. However, he is believed to be looking at other, more international, opportunities.
Others who have been mentioned alongside Carr include Alan Parker, the outgoing chief executive of Whitbread; Mervyn Davies, the former chairman of Standard Chartered; Sir Crispin Davis, former chief executive of Reed; and Niall Fitzgerald, deputy chairman of Thomson Reuters. Sir Victor Blank, former chairman of Lloyds, is not thought to be a serious contender.
Meanwhile, Bolland is thought to have got the search for a new finance director underway after Ian Dyson announced he was quitting the group earlier this month. Candidates mentioned include Darren Shapland, Sainsbury’s finance director; Andrew Bonfield, former finance director of Cadbury; Nick Wharton, finance director of Halfords; and Kevin O’Byrne, finance director of Kingfisher.
With thanks to NAM NEWS
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