Strategic Management – Case Study

Can the Saturday boy change Marks & Spencer?

Steve Rowe began his career at British retailer Marks & Spencer at the age of 15, working as a
Saturday boy in the menswear department of the company's Croydon store in south London. Later,
after four years as a trainee at the fashion chain Topshop left him complaining of lack of career
progression, he re-joined Marks & Spencer in his early twenties. He did not tell his father of his plans:
Joe Rowe was then a rising manager in Marks & Spencer and would reach the main board of the
company in the 1990s. Steve Rowe worked on the floors of several stores, including Marks &
Spencer's flagship Marble Arch store, and had a spell in the company's ecommerce business. ln 2012,
Steve Rowe finally became a company director, joining the main board that his father had served on
a little more than a decade before. Rowe would lead first the successful Marks & Spencer food
business, and then the more troubled clothing business before making it to the Chief Executive
position in 2016. On the first Saturday of his appointment as Chief Executive, Rowe went back to the
Croydon store where he had started his Marks & Spencer career and was photographed with a
member of staff who remembered him as a Saturday boy in the early 1980s.

Steve Rowe's success had not been unheralded. After all, he had controversially announced his
ambition to be Chief Executive as early as 2014, a time when the then Chief Executive Marc Bolland
was already struggling for investor support. Rowe's appointment as Chief Executive not only
followed the premature departure of Bolland, but involved pushing past two earlier favourites for
the position, John Dixon and Laura Wade-Geary. Even after his appointment at Chief Executive,
Rowe initially retained his position as head of Marks & Spencer's clothing business.

Rowe's appointment was apparently a popular one amongst company insiders and within the
industry at large. In 2014, Rowe had won the Grocer's Cup, the prize for outstanding leader in the
food retail industry, voted by readers of the industry's leading trade journal. On appointing Rowe as
Chief Executive, the then Marks & Spencer Chairman of the business, Robert Swannell, described his
knowledge of the business as ’encyclopaedic’. Rowe is known as a stickler for quality, prone to taking
photos of substandard packaging and rearranging shelf displays when visiting local stores. He also
has a reputation of being a tough-minded manager, with a company nickname of ‘Nails’ (as in the
expression ‘hard as nails’). Rowe presents himself as a diehard supporter of Millwall Football Club, a
south London team whose fans have traditionally been renowned for their aggression.

The challenges at Marks & Spencer

In the 1990’s, Marks & Spencer had been the United Kingdom’s most respected retailer, the first to
achieve over one billion pounds in annual profits. The company could trace its history back to 1884
(this date is prominent still in its marketing materials) and it had been led by members of the
founding families more or less continuously until the mid-1980s. It was originally a clothing business
and the company developed a reputation for good quality standard clothing at a reasonable price.
Marks & Spencer backed its reputation for quality by always giving refunds on returned goods from
customers. A leader in bra design, the company was selling 6.5 million bras per year in the United
Kingdom in the 1950s and to this day one in three British women buy their bras from Marks &
Spencer. The company entered the food business in the 1950s, and during the 1980s became the
first premium supplier of ready-meals in the United Kingdom, famous for such then exotic items as
chicken kiev. The company built on its reputation overseas, starting an Asian business with an initial
branch in Afghanistan in 1960, entering the Canadian market in 1973, opening in Paris in 1975, and
acquiring businesses in the United States in the late 1980s.

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But there were signs of trouble by the turn of the century already. The company held on to a policy
of sourcing all its clothing from British manufacturers until the late 1990s, imposing high costs.
Marks & Spencer refused to accept credit or debit cards until 2001. In 2004, Philip Green (owner of
Topshop and several other major retailers) launched a hostile takeover bid that was only just fended
off. Defeated, Green threatened: ‘They are going to have us breathing down their neck in every
street and every shopping centre in the UK. Then we'll see who is the best retailer.’ ln the period 2007
to 2016, Marks & Spencer's share price lost 43% of its value, while the FTSE 100 index of top British
companies lost just 5% in the same period. Profits in 2016 were £407m.

When Steve Rowe took over in 2016, he faced a number of challenges. The clothing and home
products business was still an important part of the company's overall activities, accounting for
£3.9bn in sales. However, the clothing business was regarded as having stagnated: in an age of fast-
fashion, quality tended to mean dull. At the company's annual general meeting of 2015, Muriel
Conway, a former fashion designer at the company attacked Marks & Spencer for its ugly and ill-fit-
ting ranges: ‘l could weep when l see what is in stores today. Where is the originality? The flair? The
newness? The good taste?‘ At the same time, the company had problems with availability when it
did have hits: a pink duster coat in 2013 and a brown cowgirl suede skirt in 2015 had been hugely
successful in the fashion media, but stores had quickly run out of stock. The company's customer
base was now aging, with young women increasingly preferring shops like Zara, H&M and Philip
Green's Topshop.

At the same time, there was the rise of digital sales. Earlier in his career, Rowe had been director of
ecommerce at the company, but under Laura Wade-Geary a £2.3bn investment programme in digital
retail had hit many problems: the transfer from an Amazon site to the company's own website had
required existing customers to re-register and the new online business warehouse had suffered
problems of availability, resulting in stalled growth for six months. In 2016, online sales amounted to
about 20% of total clothing and home products sales, against 40% at the similarly positioned British
retailer John Lewis. Euromonitor estimated that 18.5% of fashion sales in the United Kingdom were
online by 2016, and the online specialist ASOS, founded in 2000, already had 15 million customers
with sales growing by roughly a third every year.

Finally, Steve Rowe faced cost problems. Marks & Spencer had 302 full-line stores scattered around
the United Kingdom (about 30% of customers shopped at Marks & Spencer for both clothing and
food). However, many of these full-line stores were in prime locations with high rents that could no
longer be justified. The company had recently moved into two expensive new headquarters
buildings in Paddington, London. The overseas businesses, a major thrust by predecessor Marc
Bolland, were faltering. Although spread across 58 territories in Asia, Europe and the Middle East
(there had earlier been painful withdrawals from North America), in 2016 international sales still
only amounted to around 10% of sales. The weak global footprint contributed to a lack of purchasing
economies of scale: international retailers H&M and Zara had three to four times the buying power
as Marks & Spencer.

Marks & Spencer did have one jewel in its crown, the food business, accounting for £5.4bn in sales,
up from £4.4bn in 2010. This growth had been achieved by investment in quality and innovation, a
mark of Steve Rowe's former rival John Dixon. Marks & Spencer became famous for its ‘food-
porn‘ advertisements, with sensuous displays of luscious food items. By 2016, the company had
nearly 600 ‘Simply Food‘ stores focused on food, many converted from full-line stores. Again,
however, there were anxieties about growing digital competition, with companies such as Ocado
operating online delivery services that Marks & Spencer were far from creating.

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Rowe set out to address Marks & Spencer's problems in several ways. The declared objective was
continued growth in food and recovery in-clothing and home products. He cut 525 jobs at the
London head office and moved a further 400 roles outside of the capital city to cheaper locations. He
cut premium pay for Sunday working by retail staff. 25 per cent of the full-line stores were ear-
marked for closure, relocation or conversion to food. The company retreated from ten international
markets. However, results were slow to come. In the year ending early 2018, Marks & Spencer's
profits had fallen to £68m, with both food and clothing sales down. Rowe insisted to investors that
his turnaround plan for the company was a ‘marathon’, and that the retailer was only at the three to
four mile mark.

Archie to the rescue?

In late 2017, Marks & Spencer had got a new company chairman, Archie Norman. Norman was
renowned as a deal-maker and retailer, having previously turned around the ailing supermarket
chain Asda, before selling it to American giant Walmart. Norman promised a hands-on style as
Chairman, saying: ‘Companies are better run that way than with a disengaged board.’ Norman's
appointment brought several top management changes, including new directors of both the food
and clothing businesses, along with a head of digital and new heads of menswear and womenswear.
Several of the new managers had worked with Norman before.

The retail context in the United Kingdom was tough, especially for traditional retailers. During 2018,
established businesses such as Maplin, Toys R’ Us and Poundworld went bust, and the major
department store chain Debenhams was under takeover threat. In a public speech, Archie Norman
compared Marks & Spencer's position to being on ‘a burning platform‘. The company could not stay
in the same place, but must make a daring leap into the future.

Norman declared his support for Steve Rowe as Chief Executive. In his first strategy presentation
under the new chairmanship, Rowe presented a continuous four stage ‘transformation plan’. The
first stage, ‘putting out the fires‘, described the first two years of his leadership. 2018-2019 was
about ‘restoring the basics‘. Then would come ‘Shaping the Future‘, preceding ‘Making M&S Special’
from 2021 onwards. The transformation plan would have to address six self-identified ‘deep-seated
issues’: a ‘complex corporate culture and structure‘; ‘behind the curve in digital’; ‘more to do on style
and value in clothing and home‘; 'underperformance in food‘; ‘high cost retailer with inefficient
supply chain‘; and ‘store estate not fit for the future’. Rowe began his strategy presentation with the
bold statement: 'Accelerated change is the only option.’

In early 2019, Marks & Spencer reported again that sales in both food and clothing and home
products had fallen over the previous year. Against rising financial markets, the company's share
price had fallen about one third since his appointment as Chief Executive.

Main Sources:
www.corporate.marksandspencer.com;
City AM, 6 March 2018;
Financial Times, 23 May 2018, 7 July 2018,28 March 2018;
Guardian, 2 April 2016, 23 May 2018;
Independent, 7 January 2016;
Management Today, 25 May 2016.