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Marks & Spencer: Stuck in the Middle Market

February 22, 2016

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Marks & Spencer ’s new boss may need to vacate the center ground.

News of a change at the helm of the troubled doyen of U.K. retailing was met with enthusiasm Thursday: its shares rose 2% at the open as the market plunged, before succumbing to wider risk aversion. Given intractable problems in the group’s so-called general merchandise division—still the U.K.’s top clothes retailer by value—caution looks all too warranted.

Marc Bolland, who has led M&S since May 2010, will retire in April. At first sight the board’s choice of successor, Steve Rowe, looks odd: an M&S veteran, he is currently head of the under-performing clothing arm. But he was parachuted into that post only last July after a three-year stint leading the thriving food division, which now accounts for 44 per cent of group profits.

M&S argues that the worst of its clothing problems have been addressed. The outgoing boss blamed poor fourth-quarter clothing sales on mild autumn weather. M&S didn’t follow its high-street rivals in slashing prices before Christmas, preserving margins at the expense of sales. Mr. Bolland also insisted problems with the website had been resolved by a huge new distribution center in central England.

But M&S’s troubles run deeper than its late adoption of e-commerce, which has benefited online-savvy rival Next. Strategically, the mid-market clothing division is suffering from similar trends in spending to those that have helped its premium food offering.

The group has been losing market share to cheap-chic discounters such as Primark—now the U.K.’s biggest clothes retailer by number of items. Mr. Bolland has responded by sourcing more stock from China. That has preserved profits but is likely to raise questions over product quality, reckons Cantor Fitzgerald.

Mr. Bolland, who used to run supermarket chain WM Morrison, did well in carving out a distinctive upmarket niche for M&S in the otherwise cut-throat U.K. grocery sector.

But in clothing he has moved in the opposite direction, risking M&S’s reputation for sturdy sweaters without matching its rivals on price. The result is a muddle that Mr. Rowe, despite being an insider, will need fresh thinking to unravel.

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