Two-Year Problem

4 July 2008



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Marks & Spencer Stock Falls by a Quarter

British high street retailer Marks & Spencer isn’t having a very good time of things. The sparks that ignited the fire sale were comments from the Chairman and CEO, Sir Stuart Rose. He said that the economic troubles in Britain are “more of a two-year problem than a two-month one.” With like-for-like sales off 5.3% in the last 3 months, M&S stock was over-valued. Still Sir Stuart maintains, “Four years ago, M&S was a weak business in a strong market. Today, we are a strong business in a weak market.”

M&S general merchandise sales were off 6.2%, while its food products sales were down 4.5%. Its “Simply Food” brand held up surprisingly well given that it is more expensive than other store’s brands – M&S has managed to convince consumers that the quality is worth paying for. Nevertheless, Steven Esom (who heads up the food operation) is stepping down immediately. John Dixon, the boss of M&S Home and delivery business M&S Direct, replaces him.

That is what Sir Stuart meant when he said, “In order to meet these challenging market conditions, we need to increase the pace of change on a number of operating and trading initiatives.” That still doesn’t change the fact that profits for the year ending March 31, 2009 are expected to be well below the £1 billion recorded in the year ended March 31, 2008. Recovering will take the two years Sir Stuart mentioned.

He also said, “It’s a simple problem. Customers are feeling the pinch. I do not believe any company will be immune. It’s a UK Plc economic problem, indeed a world economic problem.” That’s not entirely accurate, though. According to a BBC report, “Data from TNS WorldPanel last week showed that sales at discount supermarkets Aldi and Lidl had surged by 21% and 13% respectively in the 12 weeks to June 15, from the same period a year earlier.”

Next week, Marks & Spencer holds its annual meeting, and there is a chance Sir Stuart will be out of work when it ends. Louisa Nesbitt of Bloomberg reported yesterday, “Pensions Investment Research Consultants, an adviser to funds overseeing more than 1.5 trillion pounds, last week told its clients they should vote against his election.” If they heed that advice, they'll probably have the votes to end his tenure.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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