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A year and a half after taking the helm at one of Britain’s oldest brands, Steve Rowe admitted he was still “putting out fires”.
It was November 2017 and Marks & Spencer had posted another fall in profits. The new 54-year-old chief executive, often described as a people person, had inherited a business in desperate need of a revival.
Supply chain issues had plagued its clothing arm for years, while previous bosses failed to stop the rot in fashion as shoppers shifted online. The food business was also shrinking as German discounters gradually won over Britain’s middle class.
On Wednesday, Rowe will step down after devoting most of his working life to M&S. A Millwall fan, he started as a Saturday boy at M&S’s store in Croydon, south London.
Rowe leaves behind a retailer that seems to have emerged stronger from the pandemic, having recently issued a rare profit upgrade.
But as a new leadership duo takes over, M&S could find itself in the teeth of a new crisis: its long-standing fashion problems are not fully resolved, while the food business, typically the more successful operation, is under pressure from rampant inflation.
With shares down 43pc this year, valuing the business at £2.6bn, M&S is moving away from a return to the FTSE 100 after it dropped out of the blue chip index in 2019. The stock has lost two thirds of its value during Rowe’s tenure.
Richard Lim, chief executive of Retail Economics, questions how much of M&S’s mooted recovery is down to “market conditions” including rivals Debenhams going bust and John Lewis shutting stores.
He says: “Are other commentators reading too much into the turnaround plan being successful rather than other players coming out of the market, which has allowed them to grab market share at a more accelerated rate?”
Richard Hyman, a partner at retail consultancy TPC, is sceptical too. He believes the market initially “overrated” M&S after strong festive sales suggested it turned a corner in its overhaul.
He adds: “The share price for a little while had a revival because the narrative of recovery was believed by the market. The market has probably realised that it got it wrong.”
Sources close to M&S say it could take a while before analysts fully comprehend how far the company has come after several false dawns.
In an update to the City this week on its performance for the past year, the company is expected to post pre-tax profits of £522m, boosted by £60m from business rates relief, and strong sales in both divisions. Analysts predict profits to drop to about £450m, partly because of a slowdown in online sales at Ocado Retail, which is 50pc owned by M&S.
Investors, however, are more interested in hearing what management thinks about inflation and whether shoppers’ habits have started to change as a result.
“They’re only interested in what’s going to happen, they can all see the wind storm coming,” says one M&S insider.
Last month Deutsche Bank analysts warned the company was particularly vulnerable to the cost of living crisis. Customers could seek cheaper alternatives or dent demand amid a squeeze on budgets, weighing on profit margins.
Helping steer the company through the uncertainty is chairman Archie Norman, a former Tory MP credited with reviving Asda and ITV’s fortunes.
Hymans says: “He is far more hands-on than the term ‘non-executive chairman’ suggests. He’s been, to all intents and purposes, the chief executive. That has pervaded Steve’s stewardship.” Rowe and Norman have always maintained they have a very good relationship.
Another retail adviser adds: “Archie’s been chief operating officer. Other people might see it differently, but Archie’s been running the business.”
A senior M&S source said the UK held a stereotypical idea of management and such a view was slightly undereducated.
“When things are going swimmingly, that’s fine. When things go pear-shaped you’ve got to be in seven days a week,” they added.
Rowe is passing his baton to two leaders: chief executive Stuart Machin and co-chief executive Katie Bickerstaffe – a move that raised eyebrows in the City.
Under the unusual agreement, M&S will have its first female leader in its 138-year history, albeit one who reports to a male boss.
The appointments are a departure from M&S lifers, some industry observers believe, which is expected to bring in a fresh perspective.
Bickerstaffe’s new title is also a nod to companies embracing modern ways of working. A mother of two, she expressed her desire to keep a four day-working week, which in effect meant she couldn’t lock in the top job.
Previously the boss of Dixons Carphone’s UK business, Bickerstaffe joined the retailer’s board as a non-executive director in 2018 and was persuaded by Norman to switch to an executive role two years later. She will run the digital operations and retain her leadership of M&S’s clothing and international businesses.
Machin, considered a protégé of Norman, will have the last word, leading the executive committee and retaining his management of food, operations and property.
The hard-charging executive is credited with assisting Rowe and Norman with the latest turnaround that began in June 2020. He has focused on family-friendly meals and tinkered with prices to convince more customers to do their “full shop” with M&S.
Then there is finance chief Eoin Tonge, who was also in the running for the top job, and has now added strategy to his remit under the reshuffle.
Norman has said the board was keen to have continuity and the new respective roles will allow M&S to keep “three very high calibre people”.
Installing a triumvirate raises the possibility of tensions at the top, a familiar tale at M&S: in 2004 the top brass was ousted in the middle of a hostile bid from Sir Philip Green.
Dual leadership hasn’t always been successful either. The Standard Life Aberdeen merger with Martin Gilbert and Keith Skeoch as co-chief executives was short-lived.
Walter Robb, who was co-chief executive of US grocery chain Whole Foods alongside founder John Mackey for years, says that while it’s fair to question it, “just to say ‘it’s absolutely not a better way’ isn’t very good either”.
He adds: “The positives are that you get the benefit of more than one opinion. There were many times when we disagreed, came back and figured it out for the benefit of the company.
“The downside is speed, and when you get to a moment of crisis, not having an ultimate decision maker can be a problem.”
Bickerstaffe and Machin’s jobs will be made tougher by an unprecedented squeeze on households as families face “apocalyptic” price rises, in the words of Bank of England Governor Andrew Bailey.
Norman has warned food prices will continue to rise this year, but that the public shouldn’t “get too panicked” as inflation will be transitory. He has also said shoppers weren’t shunning M&S as many built cash reserves during the pandemic.
TPC’s Hyman says: “I think the sensitivity in terms of economic hardship will be [felt] less in M&S’ food business than it would be in many others.
“Another defensive strength is in private labels: this is going to be a time when selling mainly, almost exclusively, own-brand is a huge advantage. This is a moment when you want to be able to control your own pricing.”
He adds: “The single biggest challenge that retailers face right now is: ‘are you going to protect your [profit] margin or your market share’? That is a really tough call.”
Machin’s efforts to be more competitive on price appears to be paying off.
Data compiled for the Telegraph by research firm Assosia showed M&S maintained or lowered the price on eight everyday items in the last six months. Only the price of milk went up from 85p to 95p - yet still cheaper than Tesco at 99p.
Progress in clothing has also been notable as M&S weaned itself off discounting. It is selling more of its clothes online as well as other third party brands, a tactic that has proved incredibly lucrative for the likes of Next.
One rival fashion boss believes the retailer has more work to do on pricing and should further improve the quality and choice of its ranges to appeal to different shoppers.
If the new team keeps the ship steady as a recession looms, M&S may have shot at being back in fashion.