Forget all the hype about defeated takeover bids and prospective private-equity plays. There are, quite simply, three major UK retail chains, which have three relatively recently appointed chief executives, whose butts are very firmly in their shareholders’ slings if they fail to show some evidence of turning around the fortunes of the enterprises under their command. The executives in question are Stuart Rose at Marks & Spencer, Kate Swann at WH Smith and Justin King at Sainsbury’s. It really won’t do any longer to talk of any of these three, as investor-relations people would have us do, as “embattled retailers” – they are the Dogs of War.
In their various ways, the three companies have all failed to meet the challenges of the past decade. Any amount of strategic guff has been waffled about relaunched product lines and improved margins by addressing the cost base, but what they all have in common is that they have lost the attention of their customers. Middle England moved on and they didn’t. The question now is not so much whether Middle England exists as they knew it – there will always be middle-class consumers, whatever you call them – but whether these retailers can ever win back a customer base that is worth having.
King has let it be known that, next week, he intends to unveil a radical strategy – persuading more people to shop at Sainsbury’s. To many a mind, this might not appear in itself the kind of brainwave that justifies an expensive executive-incentivisation scheme. But, to be fair, what King is saying – as I did at the time – is that the efforts of his predecessor, Sir Peter Davis, to control the chain’s costs and improve profitability were of no consequence unless Sainsbury’s actually re-learned how to sell more food. Davis’s infamous three-year plan never really achieved even his own narrow aims, with his early promises of industry-leading margins being quietly abandoned. Looking back – and now that Sainsbury’s may be pushed into fourth place in the superstore league behind Tesco, Asda and the newly merged Morrisons and Safeway – the strategy of addressing the woes of Sainsbury’s with cost-savings looks like turning off the lights on a sinking ship to save electricity.
The slogan that King has devised for next week’s strategy rally is “Increase sales or we die”. It’s hardly Henry V’s speech at Agincourt, and I wish business leaders would stop over-dramatising their language at times like this. I’m all for rhetorical language in business, at the expense of the dry and dusty, but sometimes such flourishes serve to conceal, rather than to reveal – “Increase sales or we are finished” would be clearer and more startling. And he has a point – unless Sainsbury’s sells more, its share price will continue to fall until one of the private-equity bidders that are all the rage these days decides it can do something different with it. Existing Sainsbury’s shareholders, by that stage, will be glad to be put out of their misery.
But what’s really important is that King has said it at all. Sometimes the simplest message is the most effective. And, in this instance, it is one that can and must be applied to the other wretched dogs of the retail sector, M&S and WH Smith. While they shape up their recovery strategies, their shareholders should really only have one very straightforward question for Rose and Swann: “How are you going to sell more stuff?”
Both of them have had to face shareholders this week and both of them have had a tough time of it. Swann’s song is the familiar one of falling profits and cut dividends – she has sold off publisher Hodder Headline for &£223m, which is being returned to shareholders, and raised &£120m in bank debt to mitigate WH Smith’s &£220m pension deficit, which has so far proved a poison-pill defence against bidders. Swann has said that she wants to concentrate on the old core of selling newspapers, books and stationery. Okay, let’s see her do it.
Meanwhile, Rose has to revive the comatose carcass of M&S. No amount of prevaricating about the cost base will alter his task, which is also to sell more stuff. So he has to run a business now. Secretly, perhaps, he’ll come to wish that he had been taken out by his old mucker, Philip Green, or had stayed outside the company to be a bidder himself. We’ll probably never know. But there’s no escape now for Rose – he has precisely the same task as King at Sainsbury’s, except that M&S is probably even closer to death if it doesn’t increase sales.
Which of them will still be in the same job in a year? For my part, I’d like to see them all quit together and start King, Rose & Swann, which sounds like a pawnbroker for retail shareholders.
George Pitcher is a partner at communications management consultancy Luther Pendragon