The plight of Marks & Spencer has got to be the biggest retail tragedy of 1999. Overstocked and overpriced, one of Britain’s most enduring institutions has suffered a spectacular crash, and the bitter pill of recovery will take a long time to swallow.
Step forward finance director Robert Colvill, a man little associated with the media but who will be a central figure in the company’s attempts to reclaim its status as more than just the country’s leading underwear seller.
And he will have to manage the internal problems against a background of US clothes giant Wal-Mart’s entry into the UK through its bid for Asda Group, whose keen pricing will only serve to heighten the already vicious competition for customers. This quietly-spoken individual has got an immense job to do following the company’s shocking trading announcement in January and subsequent news that profits had been virtually halved to £655.7m for the year ending March 1999.
And sales are down by almost 10% since the start of the financial year compared with the same period a year ago. The result is a huge crack in an image built up over decades that allowed Marks & Spencer to dictate supply terms and arrogantly assume that it could track consumer demand despite other retailers significantly undercutting its prices.
Although the leadership battle that followed has since been resolved (former deputy chairman Keith Oates resigned from the company when his bid for the top failed and chairman Richard Greenbury resigned in June), those left in charge after the prompt sacking of around 400 head-office staff and 290 in-store managers, have been damagingly exposed to accusations of a lack of experience outside of the walls of the company.
Colvill has a background firmly set in the banking world. Before joining Marks & Spencer, his experience included six years with Morgan Grenfell, and several years acquiring specialist skills in start-up ventures during his time at Chemical Bank, where he rose to managing director before he left for retailing. This made him an ideal candidate for the role of heading up the new M&S financial services division from its launch in 1985. Brought in initially to develop a business plan for the division, he was given only four months to come up with a cohesive financial strategy but was immediately asked to join the company following the presentation of his ideas to the board.
The huge response to the new operation meant that some chargecard applications were turned down, but the initial teething problems were resolved within months and in 1987, M&SFS acquired a banking licence and started offering personal loans and unit trusts a year later. The success of the financial services division has been based around strong management with a simple idea – keep the product range down and keep the customer coming back for more.
And the strength of the Marks & Spencer’s brand name with Colvill’s management is reflected in the impressive growth figures. Despite the gloom and doom surrounding the retail business, M&SFS posted annual profits in March up 24% to £111m, with increased business across the portfolio from a core of extremely loyal chargecard holders. Colvill’s years spent assisting the birth of new companies has obviously set M&S financial services on a successful road, and this ability to see a business in terms of its foundation stones will be carried through to the rescue plan of the parent company as it begins to question every financial assumption it has stood by for decades.
And the aim? To restore the customer’s faith in the company as a retail brand. Colvill is clear about the strategic direction of the business: ‘We are a basics, mid-range and classics retailer but we can also provide some fashion staples. Because of our size we are able to buy in large volume and therefore can achieve keen prices and very high quality standards.’
As analysts point out, the company’s failure is not due to one single issue but rather an entire culture that will take time to change. Commenting on the ousting of staff following the trading statement, one analyst from a major investment bank says: ‘They had a purge rather than a positive reorganisation. They need to be more proactive about price to regain some stature.’ In fact, it is exactly in the area of pricing that the public have proved to be so critical – although nobody doubts M&S can buy in bulk, its inability to match the prices of other high street retailers such as Wallis and Dorothy Perkins have been its undoing. But things are changing.
The company has already gone some way to returning to favour with the unveiling of its autumn/winter collection at the beginning of July, where around 70% of the merchandise was held at last year’s prices while the remainder took a cut. Colvill explains that the concern for price is being matched by a renewed interest in risk management that goes beyond the financial to take in the entire range of problems associated with a retail operation facing pressure from all sides. This stretches from the individual roles and accountability of the directors to new investment decisions both in the UK and abroad.
The finance director is the first to admit that the company’s major investment in expanding footage while demand was falling added unnecessarily to cost pressures in the past. ‘We have to make sure that we are not over-resourced and not carrying too much overhead organisation,’ he says. Colvill has already begun the job of ensuring that the new streamlined management team is more accountable and more clearly defined than ever before.
In a view which is fully in line with new guidance about to be released from the Turnbull committee on corporate governance for directors of listed companies, Colvill has already commandeered his internal audit staff to rank the company’s risks and start to look at ways in which the greater risks may be managed. This will be welcome news to analysts who widely regard the company as an insular world where the heads of the company have remained distant enigmas until only a few months ago. Many observers blame this isolationist approach for costing the company dear, making it unable to keep track of consumer tastes in both domestic and foreign markets. Overseas operations have lost millions while the Canadian branches closed down overnight with the sudden realisation that years of unprofitability could not be reversed. M&S is still fighting to retain its overseas trade but even Colvill admits that ‘in one or two of the major capitals we were probably regarded as an outpost of the UK’.
Over the last 18 months there has also been a concerted effort to become more efficient through an emphasis on return on capital. Analysts view this with both alarm and a shrug of the shoulders. The policy is sound enough but why has it taken so long? This supports the image that M&S is a company which publicly admits it has gone wrong, but has pledged to re-examine itself and learn from its mistakes. What becomes clear is that Colvill is a man who knows the company’s entire financial planning is in need of a spring clean, and his success with start-ups will no doubt prove an ideal match for the task. Everything from the supply base to staff morale will be affected by his decisions, but he remains calmly reflective over the media frenzy that has surrounded M&S over the past few months.
‘We knew we were going to be under the glare of publicity. Anything that we do is very newsworthy. We have to diagnose the issue and set out an implementation plan and objective. It is a classic change-management situation,’ he explains.
But behind him is a huge corporate that is struggling to the turn the business around. The efficiency drive will be supported by the reorganisation of the global supply chain following the appointment of management consultancy company AT Kearney. A new M&S website is also set for launch, allowing customers to buy the company’s products over the Internet for the first time. One of the other peculiar company traits is also about to be ditched as the retail chain allows customers to pay using outside credit cards for the first time as part of its modernisation plans.
There is no doubt that the intentions are good but a question mark remains over how long it will take for M&S to once again reign supreme on the high street.
FINANCIAL TRACK RECORD OF RETAIL WINNER
Colvill had a successful career as a banker before joining Marks & Spencer, including six years with Morgan Grenfell and 11 years with Samuel Montagu Company, climbing the ladder to become Chemical Bank London vice president and then Chemical Bank Trustee Company managing director.
His experience as a specialist in start-up ventures made him perfect material for the M&S of the mid-1980s as it looked to launch a chargecard.
This would become the staple of the offshoot Financial Services products and Colvill remains chairman of M&SFS as well as finance director of M&S plc. Colvill joined M&S in 1985, became divisional director in 1986 and was finally appointed finance director in 1993. He is a fellow of the Chartered Institute of Secretaries while also being a member of the RNLI finance committee and sits on the British Retail Consortium board of management.
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