STUART ROSE gave a barn-storming performance yesterday. Dressed top to toe by Marks & Spencer, for a total of £124, he avowed that M&S was now “all about value”.
Investors, already aware that the actual numbers being reported would make gloomy reading, concentrated on the potential of the £9 iron and £13 set of school uniform that Mr Rose brandished and decided that there was still hope for M&S. The shares rose more than 5 per cent to 342.25p but that is still a long way off the £4 that Philip Green had proposed paying for the business. Mr Rose will have to turn his low- price socks and kettles into rising profits before long if shareholders are not to start feeling resentful about the fact that Mr Green and his money were brushed off by the M&S board.
Given the grim turn that retail sales are now taking, the Bhs and Arcadia boss must be hugely grateful to that board for insisting that he should hold on to his cash. Despite the exhibition of confidence put on by Mr Rose, the problems he faces are huge.
The company is continuing to lose market share in almost every sector. The new chief executive has made progress in addressing basic retail disciplines, tightening stock levels and demanding better terms from suppliers. But as Mr Rose himself conceded, it is still not getting enough of the right merchandise into the shops. Clothing sales were down by 3.1 per cent over the year to March. “Lingerie suffered from having an over-complex range,” he opined. Apparently, customers were simply being offered too much choice of M&S undies.
But it is the plethora of choice which makes life so difficult for M&S now. Customers who might have made the group’s stores their automatic choice for a new sweater or skirt now have so many other options. While Mr Rose is insistent that his emphasis on “value” does not mean that he is determined to be cheap, there are plenty of customers for whom the two are synonymous and clothing prices are being driven dangerously low, with a consequent squeeze on margins.
Then there is that perennial problem for clothing retailers, the weather. Mr Rose and Mr Green were among the crowds at the Chelsea Flower Show on Monday night, most of whom were shivering, having decided that they should be able to manage without heavy coats in late May. Even though M&S succeeded last year in significantly reducing the level of mark-downs, the current weather conditions are likely to mean that even those stores that have prided themselves on keeping a tight control on stock will have to take some hefty mark downs.
The increased competition is not just in clothing. With a neatly ironic phrase, M&S says that: “Home had a year of transition.” In fact, its home department had a disastrous year, with sales down 21.4 per cent. Vittorio Radice’s Lifestore experiment not only occasioned a £50 million write-off but drove customers elsewhere. They are not rushing back fast.
Mr Rose has made it clear that he will need time to stand any chance of putting M&S to rights. He will also need a supportive board and the ructions of recent months have been an unnecessary distraction. The end result is far from ideal, with Paul Myners having another 14 months as chairman while Lord Burns prepares to succeed him. The effects of this compromise are causing ructions elsewhere. It seems that Lord Burns may sacrifice his directorships of British Land and, perhaps, Pearson to keep M&S non-executives happy. So other companies will suffer while Mr Rose and his shareholders would have been perfectly happy for Mr Myners to accompany him in his tough task.
UK hopes as eurozone frets
POLITICIANS fret nervously over referendums on the EU Constitution in France and the Netherlands and a lame-duck Government in Berlin. For Europe’s unemployed, however, this could be good news.
If Brussels is forced to rethink the European project and Germans bury the Continental social model, both might focus on a more urgent priority. The eurozone, especially Germany and Italy, needs urgent reform to make its economies more flexible and revive their former appetite for growth.
The OECD’s latest forecasts for the eurozone economy are dire: low growth this year and into the future. This matters doubly to Britain. Stagnation for our nearest friends and trading partners is bad news for exporters, bad news for manufacturers competing with local imports and bad news for the service industries of the City.
Eurozone woes exacerbate the UK’s own slowdown and the threat that UK public finances will enter a downward spiral. A little help from abroad would be welcome when public spending and consumer demand spending are necessarily running out of steam here.
The eurozone’s plight is also a warning against any temptation to merge sterling into the euro in the higher cause of European political solidarity. The one-size-fits-all problem is hitting Germany hard. After seven years of monetary union the eurozone economies, which initially moved closer together, are now drifting further apart.
Growth rates remain healthy in Spain, Ireland and Greece, which have benefited most from low interest rates. But the Italian economy is now forecast to shrink this year and barely clamber back in 2006. Inflation ranges from zero in Finland to 3.3 per cent in Spain. Money supply is rising 2.1 per cent in the Netherlands but at 19 per cent in Ireland and nearly 7 per cent on average. Credit is shrinking in Germany but expanding at more than 10 per cent in five eurozone countries.
Because of this divergence, the OECD’s call for the ECB to make an immediate half-point cut in its money rate is likely to be resisted. If the low-growth economies realise that no help is likely from that quarter, however, they may be forced to embrace more rapid domestic reform. Italy is suffering most from competition from China and east Europe. Germany’s reform plan might advance faster if a party was in power whose supporters agreed with it.
A summer of political turmoil should therefore be a summer of economic hope.
Poor signal
ARUN SARIN would not make a great salesman. Yesterday he reported that Vodafone profits for the year to the end of March broke UK records at £10.3 billion; that revenue for the current year would grow between 6 and 9 per cent and that margins would be close to the 38.5 per cent of last year. Yet the effect of his presentation was to knock Vodafone shares back by 5 per cent.
Mr Sarin’s somewhat downbeat approach focuses investors’ attention on the negatives. They see 3G being slower to take off than they had hoped and increased competition putting the company under pressure. Japan still looks grim and Vodafone’s United States presence, in a joint venture with Verizon Wireless, is not the ideal.
While these qualms are fair, it is also true that the mobile phone is set to become ever more important as a channel of information and entertainment as well as communication. Mr Sarin is shaping Vodafone to ensure that it is one of the major beneficiaries of the increasing spend. In the meantime, he is delivering the cashbacks that investors demand. There are reasons to be positive.
