Shocks Among the Frocks
Two things shocked me when I visited my local Marks & Spencer (MKS) store in Bromley a couple of weeks ago. One was the wide open spaces and the other was the Per Una display. After that experience, the latest sales figures come as no surprise.
The shares rose on the sales announcement because the City had expected worse. That is not a good reason to buy shares in anything.
I am no expert on women’s clothing but even I noticed that Per Una, which brought a young, fresh look to M&S when the range was introduced, was full of clothes for older women. A quick check with my in-house expert (Mrs Hobson) confirmed that my eye did not deceive me. Per Una has aged noticeably.
That in itself seemed odd, given that most of the rest of the women’s clothing range, once the driving force behind M&S, has catered more than adequately for those past the first bloom of youth.
However, the space between stands in the rest of the womenswear sector had widened considerably. While this makes it easier to get round the section, it does mean fewer clothes on display and this part of the store did look frankly sparse, hardly a good impression.
It reminded me of the day several years ago that I went into the Boots store in Bromley and saw similar wide open spaces. Boots was still a listed company then and was undergoing yet another lurch in direction, with whole ranges such as household goods abandoned with nothing to replace them. Boots continued rapidly downhill until it was taken private.
I don’t think that M&S is going rapidly downhill but clothing and homewares continue their decline and there is no sign that newcomers at the top know how to turn things round. General merchandise sales, that is clothing and homewares combined, fell 2.2% in the first quarter of 2013, which was the final quarter of the group’s financial year. The like-for-like figure was even worse, although with the spread of internet sales I believe that the total sales figure is the more important.
In contrast, food sales were up 6.3% in total and 4.0% like for like. That’s the way to do it. While supermarkets have been scrambling to get more non-food items onto the shelves over the past few years, M&S has been going in the opposite direction. Food sales now account for 55% of turnover.
The reason is that M&S food is of good quality at only a small extra cost compared with supermarkets–and the goods are packed in. There are no wide open spaces in food. In fact, the ranges have expanded. I would far rather have to squeeze past other shoppers and find what I want than wander aimlessly through wide open spaces.
The headline on the M&S results statement proudly proclaims that it has delivered its strongest quarterly sales growth in the last two years, with total group sales up 3.1%. My fear is that this figure will disguise the serious problems in non-food.
I would want a very strong reason to buy into any High Street chain at the moment. I just can’t see it at Marks & Spencer. The shares actually rose on the sales announcement because the City had expected worse. That is not a good reason to buy shares in anything.
Lessons in History
One reason why I am downbeat about Marks & Spencer is that the very successful head of food was moved to take over clothing. One may feel that retailing is retailing, but an expert on one side of the business may not be at home on the other side. The danger is that both sides of the business will suffer as a result.
I get a similar feeling about WH Smith (SMWH), where chief executive Kate Swann is stepping down in July after transforming the business over the past 10 years, a transformation that continues to the end of her reign with pre-tax profits up 4.5% to £69 million.
The comparison with M&S after the departure of Stuart Rose is a back-to-front mirror image rather than a parallel–Rose was only modestly successful and he failed to transform the business—but I worry a little that the head of Smith’s High Street chain is to take over the whole group. This is the side of WH Smith that has been struggling and has been heavily chopped back while the travel division has shown all the improvement.
I was seriously thinking of investing in WH Smith some time back when Swann announced her impending departure and I decided that her successor might not prove as capable. I hope I am wrong but I am not inclined to take the risk and after another surge in Smith’s shares I am certainly not tempted. This could be a good time for shareholders to take profits.
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