It is an irony of a free market, capitalist economy that it should so regularly adopt the terminology of Joseph Stalin’s Soviet Union, with its implementation of five-year plans. Our Government was at it again this week, with a five-year plan to tackle crime. And, while Stalin’s plans were all about collectivisation of farms and the economic pre-eminence of heavy industry over consumer goods, our consumerist companies are always launching five-year plans. The do-it-yourself chain Wickes, for instance, had a five-year plan in the late Nineties, which it confidently claimed would see off the acquisitive clutches of Focus – and a fat lot of good it turned out to be in that regard.
Then five-year plans started to look a little too long-term for demanding institutional investors in the City. Around the dawn of the millennium, Sir Peter Davis, then chief executive and subsequently chairman of J. Sainsbury, launched a three-year plan to return the supermarket chain to prosperity. Three-year plans evidently have a habit of stretching, the penalties of failing to meet deadlines being somewhat more lenient than Stalin’s, and it has been only recently that Sainsbury’s shareholders have concluded that Davis’s plan wasn’t working and he has decided to leave early, with only &£2.4m-worth of free shares to comfort him in his retirement.
A three-year turnaround plan would be altogether too long-term for Stuart Rose, Marks & Spencer’s chief executive. Takeover Panel rules require that Philip Green cannot return with a new offer for M&S for another six months, having withdrawn his &£9bn-plus indicative offer for the company last week. Rose has meanwhile indicated that M&S’s shareholders won’t be seeing the benefit of his impact until 2005. It’s fair to say that Rose has embarked on a one-year plan and probably will need to show some evidence of a turnaround at the halfway mark. No pressure, then.
Rose has also been promised a high street scrap by his corporate adversary, as Green promises to humiliate him competitively through his Bhs and Arcadia outlets. In response, Rose has started to outline his one-year recovery strategy. Rose does everything he can to avoid the phrase “back to basics”, which was so devalued as a slogan by John Major’s government a decade ago. But going back to basics is what he intends to do. M&S will refocus on its core – Middle England – customers and endeavour to improve profitability by cutting costs and waste and renegotiating aggressive contracts with suppliers. The bribe to loyal shareholders will come in the shape of a &£2.3bn special dividend, while Rose tries to push M&S’s share price above the 400p offered by Green – they were back below 350p last week after Green withdrew.
Key to Rose’s intentions is his belief that consumers have never enjoyed a retail market that has offered so much in terms of price and value. It follows that M&S is going to have to convince its Middle England customers that what it has to offer in terms of quality and style also offers sound value. I have concerns about this assumed ethos that prevails in Middle England, principally because I don’t believe that Middle England exists anymore. At any rate, not as M&S has traditionally understood it. My friend Lindsay Nicholson, editor-in-chief at another great bellwether of Middle England, Good Housekeeping, claims that Middle England has had its nipples pierced. In other words, Middle England has adopted a different set of values and is no longer wearing twin-sets in pastel shades.
Anyway, value is Rose’s watchword. And this is where it’s worth recalling Davis’s three-year plan at Sainsbury. He used to talk of “managing for value”. He too was fond of talking of enhanced profitability through savings to the cost base, which could partly be achieved through renegotiating with suppliers. Davis embarked on a project at Sainsbury’s to upgrade the efficiencies offered by information technology, as well as addressing improvements to the store estate, in particular concentrating on that relationship between quality and price that Rose identifies as so critical to success with M&S’s customers.
For Davis, the mission was “to offer extraordinary quality at ordinary prices”, as he put it in 2000. He argued that “quality is more important than price alone”. He could almost have been writing Rose’s script. Now, it’s important to say that there are differences between Davis and Rose. For one thing, Rose will have seen what Green has achieved in his businesses through by-passing the cumbersome and expensive wholesale industries in clothing and dealing with foreign suppliers direct. Groceries don’t work like that.
But, if Middle England as M&S and Sainsbury’s understood it has really disappeared, Rose will be looking over his shoulder at Davis’s experience and wondering whether a year is long enough and whether the Soviets had the right idea after all.
George Pitcher is a partner at communications management consultancy Luther Pendragon