There was little sign of the consumer downturn in Leeds city centre last Thursday. The Clinton Cards shop was still trading, the busker was belting out Ed Sheeran and the three-storey Marks & Spencer on Briggate was bustling with shoppers. But a closer look revealed that the majority of the bags people were clutching on leaving the store were full of food, not clothes.
Nicole, 40, and Priti, late 30s, both charity support workers, had come in to buy lunch, saying they were big fans of the food department. Priti had a mushroom pappardelle to microwave back at the office. They are exactly the sort of customers M&S has built its fortune on – discerning, middle-England, middle-class consumers prepared to spend a little bit extra for some quality products. So when was the last time they’d bought M&S clothing? “I’m not sure. It was some time ago,” said Nicole. “It was a cardi, maybe three years ago.” Priti added: “Everything feels like it is for your grandma.”
That is a harsh assessment. But even grandmothers say the fashion on offer is not right. Marjorie, in her 70s, an ex-M&S employee and an enormous fan, had bought cream £35 deck shoes with her discount. But the skirts and blouses? “I love Per Una, it’s great,” she said of the brand aimed at a younger audience. “The Classic label aimed at people my age is just too old for me and my friends.”
These Leeds shoppers’ experiences are likely to be reflected in M&S’s financial numbers, when it reports its first-quarter trading on Monday. Many analysts think non-food like-for-like sales will fall by about 7pc, its worst performance for at least a decade. It will make for a difficult backdrop when Marc Bolland, the chief executive, stands up to explain the company strategy to shareholders at the annual general meeting on Tuesday. It is all so different from two years ago, when at his first AGM he reported on general merchandise sales increasing by 6pc.
Even worse, on June 27 a small landmark was reached. For the first time in living memory Marks & Spencer was no longer the most valuable clothing retailer listed on the London stock market. Next, a company founded only 30 years ago, ended the day with a market capitalisation of £5.12bn, just above M&S’s £5.08bn.
Since then the gap has continued to widen. Lord Wolfson, the chief executive of Next, is modesty personified when asked about it: “Either we are overvalued or M&S is undervalued.” But he had noticed the landmark, as too had the executives at M&S’s headquarters in Paddington. The conclusion is worrying. Zara, Debenhams, John Lewis, Primark, Asos and Next have all forged ahead in the past year or so, while M&S has slipped.
Bethany Hocking, an analyst at Investec, said: “The issue with M&S is that the profit number just isn’t moving up. In the year to April 2010 it made a pre-tax profit of £694m. And we are forecasting £690m for the year to 2013 and in our view the risk is to the downside.”Back in 2008, M&S made a pre-tax profit of more than £1bn from 622 UK stores and 278 international stores. It now has 731 UK stores and 388 international outlets. In other words, its profit per shop has more than halved from £1.25m a year to £588,000 a year. Bolland has not been idle. Far from it. Every few months there is a new initiative – many are eye-catching and some very sensible.
Over the past year or so there has been the announcement of a move into high-street banking; the company has returned to Paris, for the first time in nearly a decade, along with a French-language website; Sir Terence Conran has designed a range of furniture for the company; 1,900 new food lines have been introduced; the company has opened an office on Savile Row as part of its promise to collaborate with British designers (though its “inspired by Savile Row” suits are actually made in China).
One of the most important initiatives is to make all of its clothing sub-brands far clearer for customers so that the shop can simultaneously keep a well-heeled 70-year-old looking for a Classic jacket happy, while pulling in a budget-conscious 35-year-old seeking cut-price basics. This is crucial, because about half of the company’s profits come from clothes, and womenswear is at the heart of this.
One City analyst, who did not want to be named, said: “He’s made a lot of changes, but it just hasn’t worked.”
And in the Leeds stores visited by The Sunday Telegraph it was unclear where all the sub-brands were. None of the distinctive furniture, lighting, or signage promised last year – to delineate different areas of the shop for each brand – had made it this far north. Instead of Indigo and Blue Harbour, the clearest signs were for “Knitwear” or “Casual tops”. Clothes were being grouped by category, not by brand.
Clothing has been particularly problematic for M&S. It was hit in April by a shortage of goods on the shelves. The company insisted this was not a supply-chain problem but rather a lack of confidence in the buying team meant it failed to back the big trends of spring. The company said it could have sold 300,000 knitwear items, but had only 100,000 in store. It could have sold 17,000 of those ballet pumps championed by the Middleton sisters, but had only 10,000 in stores.
These poor buying decisions have been compounded by terrible weather, which has affected nearly – but not all – clothing retailers. This year was the wettest April and June for more than 100 years. This led to both Investec and Deutsche Bank forecasting that like-for-like general merchandising sales – all non-food products – will have fallen by 8pc, one of the weakest three months of trading at M&S ever. Rod Whitehead, at Deutsche Bank, said: “Clearly the weather has not helped, but M&S is doing worse than others.
“But the other thing is M&S, instead of running a big, early summer sale, has run a series of 20pc off different categories. I don’t think they’ve had a particular impact on volumes. But if you’ve been selling products at 20pc off, you’ll have significantly lower revenues.”
So, in the past three weeks there have been offers of 20pc off most menswear, all schoolwear, Twiggy’s new range, beachwear, Autograph and Per Una. In Leeds, for instance, it was £15 for two cropped cardigans. Whitehead said this tactic undermines the brands: “The strategy is all about building up these clothing brands as brands in their own right, be it Per Una and Autograph. But discounting the hell out of them isn’t really going to help.”During its past financial year M&S’s share of the UK womenswear market fell from 10.9pc to 10.5pc. This may not sound a big drop, but represents £107m in lost sales. Hocking said: “Womenswear being so weak is a worry, because it can be a leading indicator. It is the women of the household who tend to be the main shoppers.”
In charge of womenswear, and indeed all of the non-food offer, is Kate Bostock. Since losing out to Bolland for the top job in 2010, there have been rumours that she is not happy and has talked with headhunters about leaving to run the fast-growing internet fashion site, Asos.com. The rumour resurfaced last week and was strongly denied by the company, pointing out that as she is a board member, it would have to make a stock exchange announcement were she going. One insider said M&S fully intended her to be on stage at the AGM: “Hey, we’ve got her name-badge printed.” But another suggested it was only a matter of time before she left. “Nobody stays in a job for ever, and Kate has been here since 2004.”
Maureen Hinton, at market research firm Verdict, said rumours of Bostock’s frustrations, coupled with management departures, could not be good for morale at M&S headquarters: “To lose Kate would really knock confidence in the business and it would make people question Marc’s leadership.”Recent departures include Richard Price, head of menswear, to become BHS managing director, Alison Jones, a brand director, Andrew Skinner, long-standing general merchandising director, and Susan Aubrey-Cound, new channels director.
Bolland has pointed out that none of these exits was at board level, and staff turnover is normal in a business of M&S’s scale. They do suggest, though, a company where staff are not enthused about the future. At the AGM, hundreds of faithful shareholders turn up for the free sandwich and quarter-bottle of chilled Chablis. Positive future sales predictions in the goody bag would also be welcome.