George Pitcher: If only M&S were John Lewis, it might survive

Having lost contact with Middle England, M&S’s big problem is shareholders breathing down its neck. John Lewis tells a very different story.

I am very keen – as no doubt my readers are – not to rake over old ground when it comes to Marks & Spencer. So I promise not to name again the guilty men who have brought this once fine retail business to its knees. But I am intrigued by the story of the latest sacrificial lamb to be brought to St Michael’s altar.

Perhaps the paschal lamb is the wrong analogy for Roger Holmes, who has dumped Kingfisher in favour of the exciting post of head of UK retailing at M&S. A lamb at Passover has no choice in the matter of its sacrifice. Maybe Holmes is more like the sailor in rough retail waters who is drawn by M&S’s siren calls on to the rocks.

The fact that the siren voices are calling, among other things, “&£420,000 a year, plus share options worth eight times as much” might explain why he has been drawn. But share options are worth nothing if you cannot exercise them at a profit – a simple fact of life on which Holmes might care to reflect when he is shipwrecked.

All of which presupposes that M&S is doomed. It will come as no surprise to know that I believe it is. But the news last week that Holmes has secured the termination of his contract at Kingfisher and is ready to “start” – if anyone can start anything at M&S anymore – in the New Year has been alighted upon by optimistic souls as an opportunity for beleaguered shareholders.

M&S needs not just optimism but some radical thinking. Some of that was offered in the Sunday Times by my friend John Jay, who, starting from the positive premise that the M&S glass might be half-full rather than half-empty, embarked on the following creative proposition for Holmes.

One of the great successes of the Asda growth years under Archie Norman and born-again pluralist Allan Leighton was the George clothing range, developed under the intuitive auspices of George Davies, whose eponymous Partnership Asda acquired.

Davies would cost M&S zillions and it would not be acquiring a big-business brain (witness Davies’s stewardship of Next), rather his instinctive retailing skills.

Davies might be the man (and these are my words, not Jay’s) to find the g-spot of M&S’s long unsatisfied customer.

I am not so sure. For a start, as I have said here before, “Middle England” no longer exists – at least not M&S’s version of it.

And, anyway, I think it is generous to suggest M&S’s glass is half-full. I believe it is no more than a 16th full. That makes it 15/16ths empty and I do not believe even a retail man of Davies’s consummate ability can bring its cup to the brim again, let alone make it run over as did Asda’s.

M&S simply does not have the market space, or the time, to manoeuvre. Both are luxuries that the business can no longer afford (as is, incidentally, Davies).

Which brings me to a comparison I would like to make. Coinciding with the news of Holmes’ start date at M&S was the altogether quieter news that the John Lewis Partnership (JLP) is poised to embark on an image makeover that will drag the crusty old department store chain into the 21st century (thereby, some crueller commentators might observe, missing out the 20th century altogether).

Design consultancy Pentagram has been hired to make the stores “more attractive and relevant”. That made me wonder what JLP has been doing all these years. Well, for one thing, it has “never been knowingly undersold”. It has 25 department stores, owns 130 Waitrose supermarkets and has just absorbed a lump of Somerfield.

Nothing, evidently, will be done in the design revamp to undermine the Fabian style of JLP, which was founded 50 years ago on the idealistic principles of power- and profit-sharing. It now has a little more than 40,000 partners (permanent employees) and is still run by a central council.

Its mission statements sound quaintly out of date, if a little smug: ‘The partnership aims to make sufficient profit… to sustain its commercial vitality, to finance its continued development and to distribute a share of those profits each year to its members.” Note that it talks of commercial vitality, not viability.

Now, there are those, such as Andrew Regan, the oily Eighties relic who bid for the Co-operative Wholesale Society before being caught out by his own innate dishonesty, who could not look at JLP without wanting to break it up and sell it off. Especially as, in the half-year to the end of July, JLP’s pre-tax profits plummeted 43 per cent to &£38.5m, despite an increase in sales.

But wait. In the same period JLP paid all of its members a bonus equivalent to 15 per cent of their salary. It did so for the simple reason that, as a private company, it could. I bet M&S’s shareholders wish it could have done so too.

JLP serves the same Middle England with which M&S has lost contact. And, even if JLP has lost its way, it can afford to think long-term, while M&S has public shareholders breathing down its neck constantly looking for earnings growth.

I’m not suggesting M&S should go private – the time for that is long passed. But I am saying there is great comfort to be had in private equity. And the value of that comfort should never be knowingly undersold.

George Pitcher is a partner at issue management consultancy Luther Pendragon


    Leave a comment