Through a glass too darkly

Once upon a time it was the raised eyebrow of the Governor of the Bank of England that   moved markets. Now we have Sir Stuart Rose, chief executive of Marks & Spencer, instead. When, this week, he tipped the wink that his company’s performance wasn’t all it might be, he instigated a stock market panic virtually single-handedly.

Let’s look at the stupendous scope of this achievement for a moment. M&S, admittedly the UK’s largest clothing chain, announced that its underlying sales were 2.2 per cent down between October and December compared with 2006 at the same time.

Within minutes, retailers of all sorts were experiencing their worst share-price debacle in 20 years, with billions of pounds – nearly 10% – shaved off their collective value. And not just retail stocks: airlines, including Ryanair and Easyjet, lost up to 8% and TUI, the travel group, 14%. But the most savage beating was reserved for M&S itself, which saw one-fifth of its value disappear off the computer screen during ‘Black Wednesday’. No wonder Rose was squealing for an interest rate cut (which he didn’t get) yesterday.

The Bellwether Defence
This interest rate cut is, of course, crucial to the success of what might be called the Bellwether Defence. Rose has been telling everyone who will listen that the plight of his company is overwhelmingly the result of a sudden and unpredictable deterioration in the general economy.

The more he convinces us that this is a crisis generated by circumstances outside his, or anyone else’s, personal control, the less he is likely to get a hard time from those who take a professional interest in the quality of his stewardship. Of course, he’s much too smart to try to exculpate his personal performance entirely: it is, to use his own analysis, 75% the fault of general trading conditions and only 25% the responsibility of senior management at M&S that we are where we are.

Judging from the wider world’s hysterical reaction, he has been preaching to a converted audience.

I don’t wish to detract from Rose’s outstanding ability as a retailer, nor the brilliance of his achievement in rebuilding M&S from the burnt-out ruins of Sir Rick Greenbury’s legacy. Still less deprecate the heroic qualities which enabled him to boot ‘Godzilla’ Green back into his lair with his tail between his legs. All the same, haven’t we been suckered a teensy bit by some special pleading here?

It strikes me the balance of responsibility for M&S’ current travails should be a little more in the M&S ledger and a little less in that of the general economy. That’s not to say we are in the midst of any economic picnic. Trading conditions over Christmas have certainly been tight for certain retailers, as trading statements from the likes of Next, DRG, PC World and World of Leather clearly show.

Yet we seem to have talked ourselves into such a bearish gloom that we’re now impervious to some astonishingly robust news from other parts of the retail fraternity. John Lewis in general, and Waitrose in particular (whose performance is one of the reasons for M&S’ current misery), have sparkled. Meanwhile, Sainsbury’s upbeat set of Christmas trading figures, which scotched the numerous naysayers’ predictions, have raised scarcely a congratulatory murmur. Even the mighty Tesco – which sells practically everything, accounts for £1 in every £7 of all UK retail sales, and which will reportedly turn in some attractive figures next month – has found its share price overshadowed by the M&S effect.

What about Tesco?
If we want a true bellwether of the UK economy of today, surely it is Tesco and not M&S? True, M&S has market heft and its exposure to clothing does give a valuable insight into discretionary consumer spending. But the sheer fragility of its recovery, not to mention the avowed mistakes of its management over the past year, make it a dubious bellwether.

Among those mistakes has been an obsession with turbo-charged performance on all fronts simultaneously, no doubt to keep the City happy. At times, the top M&S team look like so many whirling dervishes. In the last year or so, there has been a £1.5bn (admittedly much needed) store refurbishment programme, a massive expansion of the Simply Food convenience chain and what may well be a wrong call on deflationary trends – which has led to overconfident price-cutting, in an effort to take on the supermarkets at their own game. No wonder the wings are starting to come off as M&S flies into economic turbulence.

All the less reason, therefore, to place such emphasis upon M&S performance as a reliable barometer of the UK economy. Let’s wait and see what Tesco has to offer – particularly in the non-food categories.