As I See It
M&S back to the drawing board on break-up plan
Launching standalone stores now looks a non-starter
CEO Steve Rowe apparently began examining a possible separation of food and GM soon after his promotion to the top job in 2016. Maybe he was alerted to the idea in this column which has made several references to splitting the business.
Indeed, just after Mr Rowe’s name went up on the door I suggested parcelling up the women’s fashion range under one of the company’s brands and launching a network of standalone stores.
The case for doing this would be to remove any direct association between M&S, which the brand-conscious young do not identify with, and create a new customer base at arm’s length.
It worked for M&S Simply Foods, and has been employed by other retailers, such as Tesco which has just launched Jack’s for the discount market.
Despite spending millions in advertising M&S has simply failed to reach the fashionable young customers and needs a radical shift in direction.
At the weekend it was reported that the board explored a radical plan to split into two separate businesses before concluding that the move would not generate value for shareholders.
The high street bellwether’s board is said to have believed that a separation of the food and clothing businesses was feasible, but then decided that the struggling general merchandise division would not attract investors as a standalone entity.
Of course, circumstances have changed, even in the two years since Mr Row’s elevation to CEO. The mooted demerger came at a time of stable food performance and plummeting clothing sales. Interim results this week are expected to show a 2% decline in like-for-like food sales, compared with a 1.2% drop in its clothing business.
The internet’s grip on clothing and its devastating effect on the high street will force any retailer to hesitate before opening more stores. Indeed, M&S is planning to close 100 stores by 2022.
Added to this, it looks like the results will not make for pretty reading. Half-year profits before tax are likely to come in at £203m, a drop of around 9% on last year. It has been suggested that it is likely to drop into the FTSE 250 soon.
Investors will be looking for brights spots, but a break up is already being discounted. David Cummings of Aviva Investors said breaking the company up “isn’t really a solution”.
This dismissive view may be a little harsh and there must be an option for M&S to look closely at the success of a number of women’s fashion retailers now operating exclusively online. For now, though, it’s back to the drawing board.