Marks & Spencer (UK)

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Marks & Spencer is the UK's biggest non-supermarket retail group, selling a range of food, clothing and home goods under the banner of "luxury for less". Once Europe's most admired retailer, the group has struggled for years with flat or declining performance in its fashion business. M&S appeared to have rediscovered its direction again in 2002 after four disastrous years of profit slumps and takeover rumours. That turnaround cost the chain much of its presence in Europe and the US, and also the pride, even arrogance, which led to its near-downfall in the first place. But it proved only a short-term fix. Another blip at the end of 2003 brought fresh doubts regarding M&S's strategy. A hostile takeover by retail entrepreneur Philip Green was narrowly defeated, but the progress of recovery has remained mercurial. Although the group appeared to have regained its footing by 2006, that peak was followed by another gradual decline, especially in the fashion side of the business. M&S remains worryingly susceptible to the effects of downturns in consumer confidence but its biggest weakness is the continuing erosion of its clothing operations.

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Adbrands Daily Update 11th Jul 2019: More troubles at Marks & Spencer. Jill McDonald, managing director of clothing & home for the past two years, has left the company with immediate effect. Responsibility for the long-suffering division will be assumed on an interim basis by group CEO Steve Rowe. A reason for McDonald's departure was not given. However, some media outlets reported that she was asked to leave because of the mishandling of a recent line of jeans promoted by TV personality Holly Willoughby. Despite huge media coverage, insufficient stock was ordered, resulting in what Rowe said this week was "the worst availability I have seen".

Adbrands Daily Update 23rd May 2019: Still no sign of a turnaround yet at troubled Marks & Spencer. Revenues for the year to Mar 2019 slipped by another 3% to £10.4bn. There was an improvement in net bottom line to £37.3m, but that was mostly the result of adjustments. The underlying figure was down by 10%, and there were further worrying declines in like-for-like sales. UK food revenues slipped 2.3% LFL for the year, and 1.5% in the final quarter, partly as a result of the late Easter. Clothing & Home was down 1.6% LFL for the year, and 1.3% in 4Q. CEO Steve Rowe attempted to be optimistic, but acknowledged the weak performance. It's still a case of 'jam tomorrow'. "Whilst there are green shoots," said Rowe, "we have not been consistent in our delivery in a number of areas of the business. M&S is changing faster than at any time in my career - substantial changes across the business to our processes, ranges and operations and this has constrained this year's performance, particularly in Clothing & Home. However, we remain on track with our transformation and are now well on the road to making M&S special again." Yet at the same time, he announced that another 20 stores would close, on top of those already marked for closure. Investors reacted with dismay to the latest developments, sending M&S shares to a 10-year low.

Adbrands Social Media 3rd Apr 2019: "This Is Not Just Food...". A complete change of style here from Grey London for Marks & Spencer's food advertising. M&S has long been famous - even infamous - for its food porn ads from the 2000s. These featured lovingly photographed deliciousness, all oozing sauces and mouth-watering juiciness, accompanied by a fruity voiceover from actress Dervla Kirwan: "This is not just food, this is M&S food..." The style of those ads changed in the 2010s - no more voiceovers, and more arty than sexy - but people still affectionately recall and mimic the original ads. It's become a bit of a middle class British pop cultural meme, so it's a cute idea to recognise that fact in the new campaign.

Adbrands Daily Update 1st Apr 2019: In a daring move, Marks & Spencer appointed independent agency Odd as creative agency for its fashion and homewares business. Grey London will retain the account for M&S foods. It marks a major coup for Odd, which has established a reputation as a specialist in high street apparel accounts. It has worked in the past for both Primark and River Island, and still manages Tesco's F+F clothing brand. Does that create any conflict of interest? Presumably everyone is happy, but this represents a significant challenge for Odd: its first £3.5bn AOR client, and lots of work needed to turn it around.

Adbrands Daily Update 27th Feb 2019: Marks & Spencer agreed to acquire a 50% stake in the UK operations of grocery delivery service Ocado for £750m. That will give the troubled retailer its first home delivery service. However the partnership may not start trading until Sept 2020 when Ocado's current supply arrangement with Waitrose is set to expire. M&S CEO Steve Rowe said the deal offered a "compelling proposition to drive long-term growth". Analysts were less certain, suggesting that M&S had overpaid for its stake in Ocado's UK business, which will continue to serve other retailers including Morrisons. M&S products are expected to account for only around 10% of the food on-sale at Ocado.

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In 1884, Eastern European Jewish refugee Michael Marks set up a weekly stall in Kirkgate Market in the city of Leeds in Yorkshire, selling a variety of low-priced small goods. Unable at first to speak English, he mounted a sign on the stall which told customers, "Don't Ask The Price, It's A Penny". The business prospered, and Marks opened similar stalls in other cities. Ten years later, he moved to Manchester, opening a shop in partnership with Tom Spencer, the cashier for a local wholesaler. Selling a range of haberdashery, earthenware, hardware, household goods and stationery, the pair later opened more substantial premises in Leeds, Manchester and other cities. Spencer supplied the financial skill to back up Marks' tireless search for better quality goods at low prices.

By 1905 they ran 40 "penny bazaar" market stalls and 20 shops, and had each accumulated considerable wealth. But Spencer died in that year, followed by Marks two years later. Although the family continued to own the business, it was run by managers for the next ten years until Michael Marks' son Simon took control in 1916, assisted by his friend and later brother-in-law Israel Sieff. They set about expanding the fledgling empire further, gradually concentrating on clothing. In the 1920s, the company began a new policy, revolutionary for the time, of cutting out wholesalers and buying direct from retailers. The business flourished, going public in 1926.

In 1928, Marks & Spencer introduced the St Michael brandname for all the company's own-label goods. Reportedly the name was chosen partly in honour of the company's founder, and partly in imitation of another firm which sold its goods under the name St Margaret, after a nearby church. Marks & Spencer opened numerous outlets around the country, including a flagship store in London's Oxford Street. In 1931 the business began selling a small range of food items alongside its clothing. However Simon Marks reportedly hated the idea of being a grocer, and avoided developing this line. However with the shortage of textiles during World War II, there was little else to sell and the company effectively turned its shops into restaurants.

Post-war, clothing was reintroduced as the main line, and the group later became the first retailer to open its own research department to develop new textiles. Simon Marks died in 1964, and Sieff became company chairman, until he passed the role on to his son Marcus in 1972. By the 1970s, Marks & Spencer was established as the country's leading clothing retailer. The company also greatly expanded its food department, introducing the UK to pre-cooked meals, not just traditional European recipes, but also Indian and Chinese ready-made foods. A measure of Marks & Spencer's popularity was the fact that customers even coined their own slang term for the store, 'Marks & Sparks'. The precise origination of the phrase has never been explained, but it was already in wide usage by the mid-1960s. (It has, for the most part, died out since 1990s, mainly after the group began to promote its own preferred abbreviation of "M&S").

In the 1970s the company took the momentous step of expanding overseas, acquiring three small Canadian retail chains and opening stores in Paris and Brussels. Following the success of its pre-cooked meals, Marks & Spencer started another small revolution in 1981, when it became the first retailer to begin selling ready-made packaged sandwiches. Despite the credit card boom of the 1980s, M&S made it a policy never to accept credit cards in its stores; however customers complained and the store introduced the M&S Chargecard in 1985. That year the first non-family member became the group's chairman. A year later Marks & Spencer moved tentatively into furniture, and in 1988 jumped into the US with the acquisition of upscale New York clothing retailer Brooks Brothers for $750m, as well as Kings Supermarkets. Later the group opened stores in Germany, Spain, eastern Europe and Asia.

By the mid-1990s, Marks & Spencer was firmly established as the favourite retailer of the affluent British middle classes, supplying a stylish range of everyday clothing. The company sold more than a third of the country's underwear, a quarter of all men's suits, one in 10 of all pairs of shoes. Its foods graced even the smartest of dinner parties, and it dominated the chilled ready-made meal sector with more than 50% share. In 1998 the group reported profits of almost £1.2bn, a record among European retailers. But gradually M&S's management team had grown lazy. Over-confident about the store's reputation and its position in the market, they failed to take notice of the increasingly aggressive retail sector. Inevitably sales growth began to slow as retailers such as Gap, Hennes and Next began to tempt away clothing customers; while Tesco and Asda stole share in the food sector.

Despite demands from investors that M&S should respond to these challenges, chairman & CEO Richard Greenbury chose to dismiss the turbulence of the market as a temporary fad. Eventually he was forced to split his job, but appointed handpicked protege Peter Salsbury as CEO. Profits continued to fall, forcing the group finally to take action. In 1999, the group closed its business in Canada, and ditched many of its UK clothing suppliers in favour of cheaper manufacturers in Asia. Greenbury and Salsbury both left the group that year and former Promodes boss Luc Vandevelde was appointed as chairman & CEO with a brief to save the business. Yet this was no small task: Marks & Spencer's profits had crumbled from £1.2bn to just £145m by 2001.

At the heart of the problem was the company's St Michael brandname, used for all clothing items. By the end of the 1990s, it was long-established as the UK's most widely bought apparel line. However as a result it was also perceived by customers as over-exposed and old-fashioned. With sales continuing to fall, the St Michael brand was dropped altogether in 2001. Instead the group overhauled its clothing lines, introducing new designers. George Davies, formerly of Next and Asda's George ranges, was hired to launch upscale women's line Per Una and Autograph for men. Footballer David Beckham was persuaded to lend his name to DB07, a range of clothes for younger teenage boys. In 2002, M&S acquired sportswear brand View From from former Olympic medallist Brendan Foster, marking a major break with tradition, its first ever external purchase of a clothing brand. Blue Harbour was launched as the group's main casual menswear range. At the same time, the entire foods range was overhauled, with the introduction of a wide variety of new meals and products, as well as a complete refurb of branding and packaging. In-store coffee shops were introduced in larger stores under the Cafe Revive brand. The group also began rolling out a chain of smaller Simply Foods outlets in urban centres, targeting office workers and commuters. Most controversially of all, the group launched its first ever advertising campaign. Previously Marks & Spencer had always refused to vulgarise its reputation with advertising.

Not all of these initiatives worked. Initially, the stores' new look and labels alienated existing shoppers without attracting new customers, while an advertising campaign which featured plump "normal-sized" naked women caused a storm over what constituted "normal" body size, and shocked some elements in the media for its nudity. Several old school members of the board, including its last remaining family representative Sir David Sieff resigned in protest. Gradually however the store began to find its level, reintroducing trusted elements from the old stores alongside the new innovations. A follow-up ad campaign went for tried and trusted celebrity endorsements in a bid to re-establish Marks & Spencer as everyone's favourite store.

There was still work to be done internationally. The group's wholly-owned but loss-making operations in continental Europe were sold or closed. The Spanish stores were sold to local giant El Corte Ingles in 2000; the French and Belgian outlets were marked for closure, but the announcement sparked bitter protest and court action from local unions. They were eventually sold instead to Galeries Lafayette. The chain of more than 200 Brooks Brothers stores in the US and Japan (only nominally profitable) were sold for less than a third of their purchase price to Retail Brand Alliance in 2001. A deal to sell US-based Kings Supermarkets collapsed in 2002 when buyer D'Agostino Supermarkets was unable to raise the $160m agreed sale price. Luc Vandevelde, who had masterminded M&S's initial recovery, stepped down as CEO in 2002, handing over to Roger Holmes, formerly managing director of UK Retail.

With a recovery in clothing and food apparently well under way by mid-2002, M&S began targeting housewares as a key growth sector for the future. At the end of 2002, Selfridges chief executive Vittorio Radice was headhunted to lead the company's expansion in home furnishings, and M&S opened its first specialist home furnishing stores in 2003. An expensive flagship store was opened in 2004 under the name Marks & Spencer Lifestore. Fashion designer George Davies was also commissioned to produce a new teenage clothing range. Yet this new strategy appeared to have thrown the group off-track once again. M&S was forced to report a worrying decline in sales of its core womenswear range over Christmas 2003. Sales of women's knitwear, coats and suits were said to have fallen by well over 10% year on year. In addition the Lifestore concept appeared to have been a substantial flop, attracting many visitors, but very few sales.

In May 2004, entrepreneur Philip Green, who has already successfully turned around two other high street giants Bhs and Arcadia, announced plans to bid for the struggling M&S. Anticipating a firm bid, M&S's board ousted chief executive Roger Holmes days later, and recruited experienced clothing retailer Stuart Rose, Arcadia's head at the time it was acquired by Green. He was considered to be one of the few businessmen tough enough to defend M&S from a hostile takeover and also turn the business around. Rose immediately launched a decisive overhaul of M&S management, as well as an aggressive counter-attack on Green, including a lawsuit which prevented his legal advisors for working on the takeover because they had previously worked for M&S. Green's initial conditional bid offered around £7bn in cash and shares for M&S, and was quickly rejected by M&S's board. Shareholders also were distinctly underwhelmed, suggesting that Green may have lost his opening advantage. A second bid, all-cash this time, and valuing M&S at around £8.3bn was also quickly rejected.

The battle looked set to get dirty soon afterwards. Few observers were surprised by press reports that Philip Green had already approached Stuart Rose about heading up a possible takeover bid for M&S before he announced his intentions publicly. More seriously, however, it was revealed that Rose had at around the same time acquired a large number of M&S shares, then trading well below the level they reached after Green's bid was announced. Rose claimed he hadn't been aware of Green's plans until five days after he bought the shares. But according to press reports, the purchase was made immediately after a long telephone conversation between Green and Rose. For a while this threatened to fall into the category of insider dealing, but Rose was eventually cleared of any wrongdoing by regulators.

Taking advantage of the distraction, Green launched what was considered by several observers to be a knock-out blow, an offer valuing the group at £9.1bn, backed by the support of M&S's largest institutional shareholder. That bid was also rejected by the M&S board, but the company's shareholders appeared to be divided over which offer to back. The position was unexpectedly resolved by Philip Green himself. Although he had accumulated support from a number of important shareholders, Green unexpectedly withdrew his offer in mid-July, citing the "rude" and arrogant behaviour of the M&S board in refusing to discuss a deal.

Stuart Rose unveiled his rescue plan for the group in July 2004, promising to refocus attention on the core market of women shoppers aged 35-55, to shut down the ambitious Lifestore project, and to sell the group's financial services division. (He also gave shareholders a cash incentive to back him, in the form of a bonus dividend payout). However it was also revealed that the Per Una fashion brand had hitherto belonged to George Davies, and was only being distributed exclusively by M&S. The store said it was now paying £125m to buy the brand from Davies. However the Per Una due teenage girls' range, DB07 Beckham brand and View From were all discontinued.

By May 2005, there was little good news to report as trading continued flat. Meanwhile, there was renewed conflict at board level, with some independent directors concerned about a lack of objectivity of the part of chairman Paul Myners, widely regarded as an ally of Stuart Rose. Myners stepped down in May 2005. Later that year there was a modest upturn in sales in the food division, although clothing sales remained flat. In October, George Davies abruptly announced his resignation after a row with Stuart Rose and announced plans to launch his own rival clothing business, GIV-e. A month later, the designer was back on-board at M&S again, having made peace with Rose. He left finally in November 2008.

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