M&S Chief Rules Out Separation Of Food & Clothing Business As Profits Suffer

Published On: November 8, 2019Categories: Stocks & Shares2 min read

Marks & Spencer chairman Archie Norman categorically ruled out the possibility of the retailer splitting up its food and clothing operations into separate companies and operations after the poor performance of the latter once again dragged down overall profits. Over the six months to September 28, the results of which were reported yesterday, M&S saw its adjusted profits, the profit figure before taking into consideration the company’s restructuring costs, drop 17.1% to £177 million. Overall sales revenue was also down, though by a much less significant 2.1% margin, to £4.86 billion.

135-year-old M&S is in the process of shutting down a little over 100 stores as part of a restructuring drive being overseen by turnaround specialist Norman. However, the 65-year-old, who built his reputation at supermarket chain Asda, refuted the possibility that the company could consider splitting the company up to free its successful food business, which sells a combination of groceries and ready meals, from the drag that the struggling clothing business has on its profitability.

M&S has made several efforts to revamp and re-energise its clothing lines to appeal to a broader and younger audience but they have met with limited success. And its most recent efforts, including using the popular television presenter Holly Willoughby in a marketing campaign for a new line of denims, have been undermined by poor operational execution. Jill McDonald, hired from Halfords to head up the clothing unit, left her brief role in July after sales were limited by the company’s failure to order enough garments across the most popular lines.

Yesterday M&S pointed to the failure to order sufficient stock in certain sizes across popular ranges as the reason behind a 7.8% drop in total clothing and home sales. Chief executive Steve Rowe, who has taken on the departed Ms McDonald’s clothing responsibilities in addition to his original mandate to be more hands-on with the food side of the business, commented:

“It was a difficult market, but let’s be clear we underperformed because of our own execution issues.”

Despite the difficulties in clothing that have led some investors to suggest M&S would be a stronger business if it cut off the business to leave it to try and revive itself independently, Mr Norman yesterday outlined why he doesn’t see that as a practical possibility. He explained the connection between the two businesses as:

“Very strong sinews that join the business together that makes the idea of separating the business further today completely impractical”.

He pointed out that shared stores, with shared delivery entrances, employees and stockrooms, would mean “lots of costs associated” with breaking up the business.

About the Author: Jonathan Adams

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