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Tuesday, 21 May, 2002, 17:08 GMT 18:08 UK
Is Marks' spark really back?
Declan Curry


Marks & Spencer has announced new plans to expand its business as it trumpets a strong rise in profits. But why isn't it saying more about its bread-and-butter - clothes selling?

After the terrible beating it took a few years ago, the patient has finally recovered some of its strength, and the doctors are now wondering how to fatten it up.

That, in quasi-medical terms, is the state of Marks & Spencer.


Luc Vandevelde has seen the future - and it's cushions and cous cous.

The 31% rise in profits last year shows the company is well on the road to recovery, after those awful years of plunging profits, slumping sales, and sagging share prices.

Of course, there's much more work to do.

The share price is still only two-thirds of its value five years ago.

Profits are still well below the magic one billion pound level topped briefly in its glory days in the mid-1990s.

But at least the spark is back for Marks and Sparks.

Ikean ambitions

And the store's chairman has told the BBC how he will bulk up his once dangerously emaciated patient.

It won't involve transplants (of a corporate nature).

Luc Vandevelde has ruled out takeovers as a quick route to expansion - for now, at least.

He wants the company to grow naturally, by expanding what it has already.

Hence all that talk about new home furnishing stores, and food shops.

Luc Vandevelde has seen the future - and it's cushions and cous cous.

Small is beautiful

The company wants to expand its fastest growing divisions, without the bother of opening whole new full-service stores.

Instead, it will open 50 new food stores over the next two years.


It also wants to exploit the other hidden jewel in its shopping bag - the M&S charge card.

As it only opened five such stores last year, that's a sudden dash - but the company already has a sizeable supermarket business, and knows it works.

It sees new, small, local stores as a way of catching customers who might shy away from its larger, more traditional department stores.

Its home furnishing division is a much smaller earner, so the plans for growth here are much more measured - but the grade dame of the High Street still can't resist the lure of the Changing Rooms culture.

Last year, it established 27 self-contained cushion and curtain shops within its existing stores.

Now, it's planning two new stand-alone, out-of-town, home-furnishing stores, to open their doors by 2004.

Trusted brand

And if they work, there's no doubt there will be many more.

It also wants to exploit the other hidden jewel in its shopping bag - the M&S charge card.

While its high stores have had a ridiculously old-fashioned approach to money - remember they only started to take credit cards a few years ago - Marks' financial services business has been much more adventurous: it offers pensions, loans and holiday money on top of the in-store plastic.

In fact, its financial division is such a strong player, it's thought to have been one of the inspirations behind Sir Richard Branson's move into the money business.

Away back in 1996, he commissioned some research to work out his chances of breaking into the market for pensions, bank accounts and mortgages.

That research told him the only companies that could break into the personal finance game were those with a name people trusted.

And the only two names that were held in high enough esteem were M&S - and Virgin. (And so we got Virgin Money.)

'Fat little piggy bank'

The financial services division at M&S did see its profits fall this year - but that's partly because of good housekeeping.

It has put more money aside to cover bad debts, something it describes as a one off.

Even with the profits slip, it's still a fat little piggy bank.

It generated an operating profit of 84m from 350m worth of trading business.

If the rest of M&S had that sort of profit margin, the group would be revealing profits of around 13 Billion rather than 640 million.

Rewarding loyalty

And even though the stores now take all manner of rival plastic, one fifth of all sales in M&S stores is still paid for on the in-house charge card.

But why stop at the charge card? The boss thinks Marks & Spencer could offer other forms of plastic, so his next push is for a new combined credit and loyalty card.


Marks & Spencer has to get its house in order, before the boom turns to bust again.

Trials will start in two parts of the UK later this year.

And they're trying to think of other ways of using the financial services side to drum up sales in the stores.

So that's where the growth will be - food, home furnishings and financial services.

Empty hangers

But hang on a moment - what about clothes?

After all, that's what M&S is about, isn't it?

Well, increasingly, it isn't.

The amount of business generated last year by home furnishings, food and financial services together was greater than that for clothing, footwear and gifts.

And not just last year. M&S says this has been the case for most of the last few years.

But even though it's pushing for growth in the other areas, it says it hasn't forgotten its roots.

Getting those clothes sales up is still described as its number one priority.

Boom and bust?

The company reckons there are plenty of areas where it can sell more clothes - if only because so much of the business has done so badly in recent years.

Sales of men's tailoring and men's underwear - to name but two - have suffered sharp declines, and are seen as prime targets for growth.

And after further sharp falls at the start of last year, clothing sales at M&S picked up again towards the end of the year.

But this has only stopped the rot. If it's not to become a food company with a bit of clothing on the side, it must do much more.

And its other challenge is this - having missed out on much of the latest boom on the high street, Marks & Spencer has to get its house in order, before the boom turns to bust again.

And some analysts don't think it will make it. They say that despite the fanfare, there's nothing in today's results that will produce a better performance in the years ahead.



Seeking the spark

Analysis
See also:

21 May 02 | Business
06 Mar 02 | Business
07 Jan 02 | Business
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