The leadership of Marks & Spencer will not rest on pleasing short-term profits but they are proof that their strategy is working, writes George MacDonald

Profits ahead of expectations are not what the retail industry has been accustomed to from Marks & Spencer for what seems like aeons – but the retailer has started making a habit of it.

As Marks & Spencer released its interim results, it reported that earnings should come in at around £500m for the full year – a substantial increase on the already raised £350m flagged in the summer.

“It does seem that M&S once again has a far clearer sense of purpose and the confidence that changes being made are bearing fruit”

M&S has benefited over the last year or so from the exits of former competitors such as Debenhams but it faces headwinds in the coming months such as the industry-wide supply chain disruption.

Nevertheless, the improved position is fundamentally a testament to the strategy overseen by chair Archie Norman and chief executive Steve Rowe.

Speaking on the results webcast, Norman recalled a conversation with one of M&S’ leading alumni who said: “The trouble with M&S is it’s a great British institution but is it a business?”

It is not far-fetched to imagine that Norman and Rowe must have sometimes asked themselves a similar question over the four years they have spearheaded attempts to transform M&S. 

There were hard miles to travel, even before the pandemic that has raged almost half of that time.

But while they would caution about taking nothing for granted, it does seem that M&S once again has a far clearer sense of purpose, and the confidence that changes being made to better cater for customers’ needs are bearing fruit.

Introducing the results, Norman said: “Our project is about turning a great institution into a great business. 

“There have been plenty of doubters and cynics along the way. I understand that and probably I would have been one too. I hope you’ll see from these results that we are very serious about reshaping the business.”

He advised investors that “the real test” was the answers to some key questions – “the questions that the board is asking”.

Questions such as what has happened to the perception of quality, style and value in the clothing business? What has happened on market share in food and fashion? How is the percentage of full-price clothing sales moving? To what extent is online compensating for a store sales decline? 

The next phase

The answers are increasingly positive, though Norman would no doubt be the first to point out that the transformation is a work in progress and by no means complete.

But real progress is being made. M&S reported that changes at its food division such as sharper entry price points and product development have resulted in “an improvement in customer perception, strong core sales growth and market share gains”.

Full-price clothing sales growth of 17.3% was helped by initiatives to improve buying and merchandising, through to fewer options and an emphasis on value for money rather than staging blizzards of promotions. 

“It is possible that for the first time in ages, investors can also imagine M&S once again being a great business as well as a venerable institution”

The creation of the MS2 ecommerce division has meant the retailer was better able to sell its fashions online and compensate for sales lost in-store. The aim now is to generate around 40% of clothing and home sales online in three years, compared with 34% in the first half.

Rowe said that as M&S moves into a new period of its transformation, “we are confident of our ability to drive shareholder value in the next phase”.

Norman joked: “I’ve never seen short-term profits as the most important measure of our success – but it is quite nice to have some.”

M&S’ shares were up nearly 15% at the time of writing. It is only a half-year, but it is possible that for the first time in ages, investors can also imagine M&S once again being a great business as well as a venerable institution.