Can M&S keep its sparkle once it’s transformation CEO steps down?

Marks & Spencer’s (MKS) outgoing CEO managed to deliver what many doubted was doable: he turned around the fortunes of the retail giant, and dragged it kicking and screaming into the 21st century, though not without a few battle scars and more than 60 store closures. Starting work at the company when he was just 15 years old it wasn’t until 2016 the brand veteran took over the reins of a very tired, rather unkempt behemoth. Two years in I remember interviewing shoppers outside the Leicester city-centre store which had been earmarked for closure: most agreed the business had lost its way and felt the only bright spot was the food offering. There was speculation the food business might be spun off as the rest of the business sank deeper into decline, and for the first time in the then 35-year history of the FTSE 100, M&S was demoted from it. Down but far from out.

"Something had clicked. You could feel it when you walked into a store or perused the website."

A tricky tenure for Rowe

Source: Refinitiv

Perhaps it needed someone with the brand running through him like a stick of rock to fathom out how to blend tradition with innovation, keeping core customers happy whilst finally attracting new ones. Lines were streamlined, online was championed and not one but two profit upgrades were issuedin the last year. Something had clicked. You could feel it when you walked into a store or perused the website.

Could there be trouble ahead?

"With inflation already uncomfortably high after the pandemic upset supply chains, Russia’s invasion of Ukraine is widely expected to force the cost-of-living crisis longer and deeper."

It wasn’t surprising that the announcement of Steve Rowe’s departure initially unsettled investors – shares fell almost one percent following the news. But then came the succession plan, clearly well-orchestrated, putting two internal candidates into Rowe’s well-worn shoes. And both will play to their strengths which, undoubtedly by design, are also the areas M&S can expect to experience the most growth going forward. Stuart Machin comes from the aforementioned incredibly successful food arm, Katie Bickerstaff clothing and home, the latter having finally found its mojo in recent months.

It’s been made clear that Machin is the one in the driving seat – Bickerstaff is the only one of the pair to have the title “co-CEO” – but politics aside the pair will have plenty to deal with, though Rowe has undoubtedly left the business in a far better shape than it was in when he inherited it. With inflation already uncomfortably high after the pandemic upset supply chains, Russia’s invasion of Ukraine is widely expected to force the cost-of-living crisis longer and deeper. Supply chains, just beginning to slide into a normal rhythm, are having to dance to yet another new tune. And as inflation soars consumer confidence is taking a pummelling, and all retailers are anticipating a fight for our patronage.

Consumer confidence falls as inflation soars

Source:Refinitiv

Fit for the fight

"Just delivering the rest of the plan isn’t going to cut it. Investors have had a taste of success; they want to keep enjoying it and that will require constant reinventing."

But Marks & Spencer’s transformation is ongoing – just this week it announced yet another tie-up with a well-loved British brand. Early Learning Centre won’t just be on sale in 10 stores – it will be ready to play. Activity tables will be at the heart of the offer, drawing in families who might then stick with the brand for the whole of their children’s school journeys. Rather like its high street neighbour Next (NXT), Marks & Spencer has subscribed to the ‘more is more’ theory. More brands under the same umbrella mean more choice for the consumer, more reasons to step into a store or browse the website. But unlike in previous years it is continuing to streamline its own offer. Smart staples and active wear. Clean lines, clear identity.

However just delivering the rest of the plan isn’t going to cut it. Investors have had a taste of success; they want to keep enjoying it and that will require constant reinventing. Do the new CEOs have that in them, do they have their own sparkle? The good news is that Archie Norman, the retailer’s formidable chair, is still in place – though how much of the brand’s successful adaptation can be levelled at him can only be speculated upon.

And whether his replacements like it or not Steve Rowe isn’t just riding off into the sunset. He’s remaining on hand to offer advice or act as a sounding board for up to a year after he officially steps down in May. Advisors and investors like continuity, but given the choice between safe and sparkle there’s little doubt which they would pick.

Past performance is not a guide to future performance and some investments need to be held for the long term.