War of the Rose

“Am I warm and breathing? Yes. Do I look as if I’m going anywhere? We’ve had a shit year, but Steve is still standing, I’m still standing and we reckon together we’ve got more to offer – two old farts like us.”

Stuart Rose launches into a strong defence of his position. Marks & Spencer’s executive chair­man and CEO, together with Steve Sharp, his long-term friend and marketing director, may be under heavy attack from disgruntled shareholders and a variety of other critics, yet both appear calm.

Articulate and charismatic, Rose is a natural CEO who fills whatever room he is in. When he hits his stride, streams of consciousness come in rapid bursts, each so fast and rhythmic, he could be rapping.

“Through thick and thin, famine and pestilence, war and peace, boom times, bad times, this company has been there. It’s part of the thread of British retail and social history.”

Marketing director Steve Sharp is far quieter and more considered. He and Rose have worked closely together for more than 20 years. They frequently finish one another’s sentences.

After Rose and Sharp’s arrival at M&S in 2004, they were responsible for rekindling the love affair between British shoppers and Marks & Spencer. They rode to the rescue with such success, rival retailer and M&S suitor Phillip Green and his £4-per-share bid for the business were sent packing. The pair won plaudits-a-plenty en route to taking the share price north of £7.

“When we arrived here we had a lot to do and we did it,” says Rose, referring to the four years of “repair work” he and Sharp put in. “Then the recession came and gave us a left hook and we suffered badly. Now we’re up on our feet again and we’re working on getting the business healthy for the next ten or 15 years, and that’s the summary of my story.”

Even as recently as 18 months ago, having reported profits of £1bn, Rose was winning business leader awards left, right and centre, while Sharp was beating off fierce competition to win similar awards in the marketing industry.

Now, though, the value of the company has plummeted to about £3 per share. Investors have been getting increasingly agitated about Rose’s dual role and what they see as a crass disregard of good corporate governance. A “dysfunctional board”, squabbles over remuneration and a lack of succession planning have also been among the criticisms splashed across the press.

Despite the falling share price and rows with investors, neither men give the erosion of trust in the M&S board from parts of the City too much credence. “Just because they [the shareholders] don’t like this one bit – the period between 2008 and 2009 – well, I’m afraid if that’s how short termist they are then they shouldn’t be shareholders in the business, quite frankly,” says Rose.

M&S says it will appoint a new chief executive in 2010 (“We don’t say whether it’s January or December because, frankly, we don’t know”). Rose says he will stay on as chairman to help that person get into the saddle but is committed to going by the end of July 2011.

“We’ve learnt from the recession,” says Rose, addressing the matter of what, if any, circumstances would see him go sooner. “If you’ve never been in one, if you’ve only been a fair-weather sailor, you’ll drown. That’s one of the reasons that we’re at pains not to change management right now.

“What new chief executive would want to inherit this boat in the height of a storm, in a headwind and among choppy seas?” he asks, adding: “Should I just let go of the wheel and say ‘it’s all yours son?”

“We’re 117 years old between us,” says Rose, pointing at Sharp. “Nearly as old as the business.”

He looks at Sharp who cracks and starts laughing. Suddenly, the pair dissolve into laughter. Rose has forgotten whether Sharp is 57 or 58 years of age and Sharp won’t tell him.

Rose returns to arguing his case. “We’ll get back to normal governance but for now we need to execute the strategy we’ve planned to get us out of this.”

So what about that strategy? Will it be built around strong marketing in the same way as the earlier M&S “repair work”?

The answer is surprising. Neither man accepts that M&S’s previous recovery was specifically a marketing-led one.

“It was product led,” says Rose. “If we hadn’t improved the product, Steve could have marketed the socks off Marks & Spencer but it wouldn’t have got us anywhere.”

If you’ve never been in a recession, if you’ve only been a fair-weather sailor, you’ll drown. That’s one reason we’re at pains not to change management right now. What new chief executive would want to inherit this boat in the height of a storm? Should I just let go of the wheel and say ‘it’s all yours son’?

Stuart Rose

“When we got here,” explains Sharp, “the business was in a mess and all in silos. Nobody and nothing was co-ordinated. The ‘Your M&S’ campaign wasn’t just advertising, it was an entire manifesto. It spoke to three audiences: customers, staff and shareholders. And it said that we’re back in business.” As far as the advertising is concerned, Sharp dismisses the ‘Your M&S’ campaign as “just a few posters and a bit of press”.

But what about the television ads, such as those that came to be known as “food porn”, starting with that chocolate pudding? Sharp replies: “I went to Stuart and asked him to back me to the tune of £5m for a food campaign. I knew we were pretty skint at the time but I also knew our customers didn’t have a problem with our food, in the way they did then with our fashion. That’s where the food porn ads came from. And you’re right, it worked. But most of all it helped to give confidence and self-belief back to the staff and the business.”

He continues the tale, including the arrival of Kate Bostock [appointed in April 2007 as director of women’s wear, baby wear and lingerie] which subsequently led to new and better merchandise. “So I went back to Stuart and asked for a few more quid to do the same trick, and again it worked. That’s when we got Twiggy and the girls involved.

“But the whole recovery thing came together because we were spending huge amounts of time and money, a billion a year at some points, on refurbishing stores, improving products, marketing; it’s never just one thing,” Sharp insists.

But nor can marketing be described as “just one thing”. According to Philip Kotler, author of Marketing Management besides many other canonic texts, marketing starts with opportunity identification and un-met consumer needs, long before the new product development stage.

“Selling is only the tip of the marketing iceberg,” writes Kotler. “What is unseen is the extensive market investigation, the research and development of appropriate products, the challenge of pricing them right, of opening up distribution and of letting the market know about the product. Thus, marketing is a far more comprehensive process than selling.”

On that basis, the M&S recovery that followed Rose and Sharp’s arrival in 2004 was unquestionably marketing led.

Rose and Sharp become visibly annoyed when they learn that some top marketers criticised recent M&S marketing strategy during a party the previous evening (see Leader column, page 3). Rose bristles with indignation: “Can I ask, are these what you would call marketing professionals?”

Sharp chips in: “These marketers who told you they thought our messages are confusing, they sound like marketers with just one product or brand to take care of. It isn’t so easy for us, we have a lot of audiences. We have fashion-conscious people and price-conscious people.”

It’s not the only time they go on the offensive. Rose fights to get his view heard when Sharp is challenged for defending a cut in the M&S marketing budget. Among shut stores, staff cuts, and dividends being slashed, the argument goes, surely there is a case for keeping the marketing budget steady or even increasing it. Yet last year M&S’s was cut by 20%.

Rose answers: “Nobody is immune and we can’t ignore it. All budgets were cut and it is reviewed on a weekly, monthly and quarterly basis. If there’s a need to change then we’ll have a look. But Steve has to take his pain like everyone else. He beats me up and doesn’t talk to me for a couple of days but then we’re mates again.”

Sharp takes over. “Look, we all fight our corner for what we believe in, don’t we? I have to wear two hats because I’m privileged to be a board member. But that makes it more difficult because you have to weigh the shareholder responsibility against your own instincts.”

But surely he believes that marketing can only help. After all, if he runs the ad featuring a chocolate pudding today, he sees a noticeable spike in sales almost immediately.

“Yeah,” he admits, quietly, “we know that.”

Rose steps in. “It’s not as if we’ve stopped advertising. Steve has invested a huge amount and the tank is not empty. We want to keep up the brand momentum but times are tough. We had to sack 400 people in this building not so many months ago. Everybody has to take the pain.”

The ‘Your M&S’ campaign wasn’t just advertising, it was an entire manifesto, speaking to customers, staff and shareholders. It said: we’re back in business.

Steve Sharp

Sharp adds that M&S is buying its media more efficiently due to deflation in both media and production costs. “We’ve got loads going on,” he says. “We’re very visible with a campaign that is making a lot of noise.”

Moving to those current campaigns, Sharp describes how the most recent communications came about, acknowledging the success of the timely Dine In For £10 offer. “That wasn’t the only one. A number of promotions were designed to help our customers through the recession but this is a business built on quality, so there’s only so far down that road we could go.”

That was all last year when things were deteriorating quickly, he says. Since Christmas things have not got any worse. Now is the time, he feels, “to do something positive for ourselves, our own business, rather than just responding to market conditions.”

“We looked at what we did five years ago and started again. We said ‘let’s do a manifesto campaign that talks about what we stand for. We introduced Quality Worth Every Penny. Four words that absolutely nail what this business stands for and I hope will live long after me.”

Will it be as defining as Tesco’s Every Little Helps or Sainsbury’s Try Something New Today?

“I hope it’s more meaningful and will hopefully last longer,” Sharp responds.

Then there is the latest campaign. Doing The Right Thing is a powerful reminder of the ethical, social and environmental commitments made in the 100-point Plan A launched two years ago (see boxout, page 20). The feeling at M&S is that while the retailer has stuck by its pledges for sustainability, competitors have cut and run from their own similar promises as soon as the financial going got rough.

“We care,” says Rose. “We care about our staff. We’re the only company of our size that offers free breast screening for female staff aged between 40 and 50. You can’t get it on the NHS until you’re aged 50-plus.”

“We care about our values – quality, value, service, innovation and trust. We care about sustainability and climate change,” he continues, “and we care about ethics and health. We need to deliver what the customer wants and ‘she’ wants to consider more than price.”

Rose believes such a message will see M&S out of trouble. “If we keep delivering we’ll get it back. We were affected first by the recession and we’ll be among the early emergers. The cream always rises to the top,” he says.

“We’ll see where we are in a couple of years with regards to the share price. But Steve and I were handed a clapped-out old motor car. When we come to leave M&S we’ll know that we didn’t just jump-start it before handing it onto the next bloke. We’ll be able to look him in the eye and say, ‘we’ve taken it right down to the chassis, we’ve protected it against rust, we’ve put in new mechanics. We’ve also put in new upholstery and changed the oil. It’s now ready not just to drive but to drive fast.” Rose concludes: “I’ll be able to look myself in the mirror.”

Maybe the choice of the timing of his departure will be taken from him. The AGM this week sees Rose, Sharp and the rest of the board face a resolution from shareholders, led by the Local Authority Pension Fund Forum, to bring forward the appointment of a new independent chairman from 2011 to 2010.

How sure is Rose of winning shareholder backing? “Am I confident about seeing off the resolution? I’m not saying we will. I’m confident that we’ve put up a robust defence.”

Rose sighs. Suddenly he looks exhausted. “Unfortunately, this corporate governance thing has got in the way of some very good things in this business. We introduced my dual role knowing it would cause a bit of controversy. But we believed, and continue to believe, we did it for the right reasons.

“We understood it was controversial, we always said it would remedy itself and we’ve said in the company report that it will change back again. But I believe the most important thing for shareholders is not corporate governance. It’s making sure the business is in the right hands and is run well throughout the recession.”

The corporate governance thing has got in the way of some very good things in this business. We introduced my dual role knowing it would cause controversy. But we believed, and continue to believe, we did it for the right reasons.

Stuart Rose

Rose concludes that it is “sad and unfortunate” that what he sees as the company’s real issues have been clouded by the shareholder controversy. “But are we beating our heads against the wall worrying about corporate governance and being all ‘woe is me’? No. We’re talking about product, we’re talking about customers, about making the business better.”

It sounds like he’s talking about marketing again. “We’re talking about investing and excite­ment,” he admits. Glancing at Sharp, he quips: “We’re still enthused – for our 117 years.”