| BUSINESSWEEK ONLINE : OCTOBER 18, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- EUROPEAN BUSINESS
Jolly Few Sparks at Marks & Spencer (int'l edition) As sales slump, investors are fleeing. Is a takeover in store? In 1985, Britain's best-known retailer was the subject of a gusher of a book: Marks & Spencer: Anatomy of Britain's Most Efficiently Managed Company. Nowadays, any book on the 115-year-old food and clothing chain would need a new title. Comedy of Errors is more like it. Shareholders, though, aren't laughing. Despite a strong brand and 14 million customers in its British stores each week, the company's sales have fallen 11.7% since March. In September, two well-respected board members resigned, analysts cut their earnings forecasts by 10%, and the company's biggest shareholder, Prudential Insurance Co. of America, dumped more than $144 million worth of M&S stock. The share price is down 43% in the past 12 months and trading at a six-year low. FIERCE RIVALS. If the stock keeps heading south, M&S could start looking like a takeover bargain. Analysts say the company's $15 billion market value already is very close to its net asset value. But any buyer would have to make radical changes to turn M&S around: Operating profits fell 48.6%, to $874 million, in the fiscal year ended last Mar. 31. The company's bureaucratic culture clashes with aggressive competitors such as Wal-Mart Stores Inc. M&S executives are trying to control the damage, in part by confessing to their mistakes. ''We've lost touch with our customer,'' concedes Clara Freeman, a 24-year M&S veteran who in the recent board shakeup was promoted to director of stores in Britain. ''But we're determined to change.'' The sooner the better. Clothing retailers such as Gap Inc., Spain's Zara, and Britain's Next have challenged M&S on price, quality, and style. M&S is trying to revamp its unfashionable image. It has hired the owner of London's racy lingerie shop Agent Provocateur to liven up its line. But in prepared foods, a business M&S pioneered in Britain and which accounts for 42% of total annual sales of $12 billion, the news is even worse. Domestic supermarket chains such as Tesco, J. Sainsbury, and ASDA, recently acquired by Wal-Mart, are offering a wide range of ready-made meals at competitive prices. M&S is in trouble abroad, too. It spread itself too thin on the Continent, opening 42 stores in six countries. The company blames poor location choice for the $27 million closure of six European stores in July. Others blame overpricing and failure to adapt merchandise to local tastes. ''They've stuck to the attitude that what works in Manchester will work in Madrid,'' says Keith Wills, an analyst at Goldman, Sachs & Co. in London. M&S international businesses reported an operating loss of $126 million on $2 billion in sales last year. Only the U.S., where M&S owns Brooks Brothers and New Jersey-based Kings Super Markets Inc., reported a meager profit of $25 million. MAJOR CREDIT CARDS? CEO Peter Salsbury is shifting the focus back to Britain. He wants to recoup market share at home by adding new products, cutting prices, and redesigning stores. Yet market observers question whether Salsbury and M&S have what it takes. It is often compared to the notoriously bureaucratic British civil service. Still, some progress is being made. Almost 700 jobs have been cut, Kings is up for sale, and outsiders have filled three senior jobs--including the company's first marketing director, Alan McWalter of retail chain Woolworth's. And M&S plans to expand into e-commerce in time for Christmas. That will likely mean an end to the retailer's outdated ban on outside credit cards. Salsbury knows there's a lot more to do. But he made a startling confession to a local paper on Oct. 3: ''I do not have a plan that goes beyond the next three years. I am much more concerned with the next six months.'' With that kind of strategic planning, one of Britain's most venerable institutions is beginning to smell like takeover bait. By Kerry Capell in London _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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