Sir Stuart Rose is seen as the man who saved Marks & Spencer, one of the flagship names in UK retail. His achievements even helped him become a knight of the realm in the New Year. However, this year, Sir Stuart is faced with a fresh set of challenges at home and abroad. Dean Best looks at why 2008 could be a pivotal year for M&S and its chief executive.
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2008 kicked off pretty well for Stuart Rose, chief executive of UK retailer Marks & Spencer.
Rose became a knight of the realm when he was awarded a knighthood for services to the retail industry and to corporate social responsibility.
The award was, in part, recognition of his stewardship at M&S, which he has turned around since becoming chief executive in 2004.
The gong was also for the company’s environmental initiatives, which were launched last year. The programme was dubbed Plan A – “because there is no plan B” – and included some of the more ambitious and wide-ranging ethical initiatives seen the retail sector.
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By GlobalDataAmong retail watchers and in City circles, it was generally agreed that Sir Stuart had succeeded in revitalising M&S and returned the company back to its position as one of the flagship brands on UK High Streets.
However, since the start of January, there have been signs that 2008 could be a challenging year for the new knight.
In the first weeks of the year, M&S admitted that trading during November and December had been “challenging” and said like-for-like food sales had dipped 1.5%. It had been a tough Christmas for retailers of all colours but food retailers had showed signs of vitality – not least rivals like Morrisons and Asda. But, with retailers focusing on value performing the strongest, it seemed the more upmarket M&S was not resonating with consumers more inclined to watch their wallets.
However, in the current business climate, dropping prices to lure back shoppers is not an easy option. With food manufacturers currently looking to pass on rising costs to their customers, retailers are facing pressure to up prices in stores. How to balance rising supplier costs with pressures on consumer spending is a conundrum facing all retailers.
Last month, it was claimed that M&S was beginning to play hard-ball with its suppliers on costs. Reports in the UK said the retailer had “enraged” suppliers by demanding bigger price discounts. One unnamed supplier labelled M&S “brutal”. The retailer, however, said it was not changing its payment terms.
To add to Sir Stuart’s unease, the much-vaulted “Plan A” programme has even faced some criticism. This week, a leading UK trade union accused M&S of not “practising what it preaches” and not doing enough to stop “widespread discrimination” among workers in the country’s meat supply chain. The Unite union also launched demonstrations outside M&S stores across the UK to demand that the group operates an “ethical supply chain”.
The company looked to play down the claims, insisting that the union was “mistaken” and defending its record on labour standards. Nevertheless, no matter how much M&S tries to cool reports of tensions with its suppliers or claims that it is not living up to its ethical promises, the company seems less sure-footed than in recent years.
However, despite some domestic issues, Sir Stuart has set his sights on a fresh overseas foray for M&S. He wants to grow the company’s international business by up to 20% of group revenue within the next five years and has earmarked markets like China and India as key overseas territories for the business. These ambitions carry an element of risk and M&S has a patchy record overseas, with the company retreating from the US and Europe in recent years.
Nevertheless, Sir Stuart has identified China, India and Eastern Europe as offering the business a substantial opportunity for growth. All three markets represent a great deal of potential for retailers looking to expand overseas but the battle for share will be fierce. M&S has begun making some moves – the company today (29 February) announced further investment in Greece and Eastern Europe – but the market is awaiting ventures into China and India. M&S is in talks with Reliance Industries over a possible tie-up with the Indian conglomerate’s business Reliance Retail but a deal has yet to be signed.
Both markets remain a long-term play with huge potential but, with larger rivals like Tesco, Carrefour and Metro either building or looking to build a presence in the world’s two most attractive fast-growing economies, M&S needs to move quickly.
Sir Stuart was seen as saviour of M&S. The next couple of years, particularly his decisions overseas, will define his legacy at the UK retailer.
