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M&S: running to stand still

Retailer M&S has been undergoing revamps for years, but it still hasn’t found solutions to all the structural problems it faces. Alice Gråhns reports.

898-share-MandS
M&S: clothing sales keep shrinking

Retailer M&S has been undergoing revamps for years, but it still hasn't found solutions to all the structural problems it faces. Alice Grhns reports.

"Just when it seemed things couldn't get any worse at Marks & Spencer, theretailer has sent out a giant SOS," says Ben Marlow in The Daily Telegraph. The high-street chain has been struggling for years, but after another steep fall in profits, CEO Steve Rowe "has held his hands up and admitted" that it is having serious trouble adapting to a rapidly changing retail sector. In March, he highlighted how the group's slowing food division would need to reposition itself, but now "the tone is markedlymore sombre".

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M&S "has been restructuring itself for about two decades", says Nils Pratley in The Guardian. So it's no huge surprise that we are already on a third version of a five-year revamp launched in November 2016. Then, Rowe declared that a review of the store estate would mean 30 shop closures within five years. That figure became 60 a year later. Now it is 100, "suggesting the original estimate was just a rough guess". And it's far from clear that the latest store plan is "bold enough". Factor in new store openings, and the firm will only be closing 10% of its stores surely too few if you want a third of your sales to be online by 2022.

So far, so blah

Early signs are not auspicious, says Carol Ryan on Breakingviews. After 18 months of a five-year overhaul, like-for-like sales at M&S's food and clothing divisions "are still shrinking". The overhaul also "lacks a clear price tag". It cost the group £514m last year, with £321m spent on store closures alone. Another website overhaul will apparently be needed, along with a new distribution centre.

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It's about time the website was sorted out, says Lex in the FT. The company can do nothing about rivals getting together to increase competition such as Sainsbury's $10bn purchase of Asda from Walmart but it's "fully responsible for its own underwhelming e-commerce offering". It's absurd that people can buy party food, but not groceries online. The annual results did include "some bright spots", says Andrea Felsted on Bloomberg View. Profit before one-time charges, although down 5% from 2017, exceeded analysts' forecasts. The number of customers in its clothing and home furnishing division rose for the first time in five years, while the pension surplus is approaching £1bn. Still, the shares are down over 20% over the past year and it could soon fall out of the FTSE 100 a reflection of how the group is essentially running up a down-escalator.

The structural changes the group faces are daunting, says Marlow. In womenswear competition from "fast-fashion giants" H&M and Zara is increasing, while e-commerce groups such as Asos are also in the ascendancy. And in food the German discounters are nibbling away at M&S's market share. Will it still be here in ten years' time?

Britain's ten most-hated shares

CompanySectorShort interest on 29 May (%)Short interest on 24 April (%)
DebenhamsGeneral retailers13.8714.69
Greencore GroupConvenience food13.5415.03
Pets at HomePet retailers13.2212.2
Marks & SpencerGeneral retailers11.5411.76
GVC HoldingsGaming operators11.36214.45
The Restaurant GroupRestaurants11.3612.11
AggrekoPower supplies10.3910.38
J SainsburySupermarkets10.32811.16
Anglo AmericanMining9.07NEW ENTRY
IQESemiconductors8.98NEW ENTRY

These are the ten most unpopular firms in the UK, based on the percentage of stock being shorted (the "short interest"). Short-sellers aim to profit from falling prices, so it can be useful to see what they're betting against. The list can also highlight stocks that might bounce on unexpectedly good news when short-sellers are forced out of their positions (a "short squeeze"). Mining giant Anglo American is a new entry on the list. Investors are concerned that a trade war between the US and China would dent demand for industrial metals.

City talk

"Look what's just gone on the barbie: a billion quid," says Alistair Osborne in The Times. Sure, it's not only managing director Rob Scott's fault that the Australian conglomerate Wesfarmers is "looking so burnt from its Homebase caper": bought for £340m in 2016, sold for £1 to Hilco, after about £660m of writedowns and losses. The brains behind the deal is the since retired Peter Davis. Yet Wesfarmers "made just about every mistake in the retail book of overseas screw-ups". Now 11,500 jobs are at risk.

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"Dixons Carphone's turnaround may fail to connect," says Aimee Donnellan on Breakingviews. Its shares fell by a fifth after it said UK customers were set to reduce spending on stereos and phones over the next year. New boss Alex Baldock "has a bold recovery plan". He wants to bolster the mobile business by keeping more of the money telecom groups make selling handsets to customers. The problem? While Dixons, whose brands include Currys and PC World, currently enjoys a 22% share of the UK mobile-phone market, the likes of Vodafone or BT have other options. "The danger is that Dixons loses market share" and has to rely on its "shaky white goods unit".

The big telecoms players' TV offerings are pricey and include hundreds, or even thousands, of hours of content, says Matthew Vincent in the FT. TalkTalk is the only provider that seems to realise "not everyone has the time or money" to watch it all. The firm added 192,000 net new customers to its "Fixed Low Price Plans" costing £18.95 a month in the year to March. But such customers also bring lower margins. Earnings therefore "made for less-than-compelling viewing".

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