It's not so much a job, more a way of British retail life

Marc Bolland has big boots to fill at M&S. He must pull in young shoppers, sweeten global performance and not blink at a huge pension deficit. James Thompson reports
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The Independent Online

There are few, if any, other jobs in British retailing where the first day for the new chief executive would be seen as a major event. But when that retailer is the national obsession of Marks and Spencer the arrival of Marc Bolland, the former chief executive of Morrisons, will be a red-letter day in the history of the high street.

Despite four months of gardening leave, the Dutchman has already met his immediate team and spent some of his free time checking out stores. But the real work starts on Tuesday and his intray will be full of short and long-term tasks to address.

The good news for Mr Bolland, who played a pivotal role in turning around Morrisons after taking the helm in September 2006, is that he joins M&S at a time when its performance is on a steady upward curve. The less rosy news is that at M&S his every move will be subject to a level of public, press and City scrutiny that could make his time at Morrisons seem like solitary confinement.

The frequently cited strategic changes that need to be made at M&S include attracting a new generation of younger shoppers, reinvigorating its international performance, tackling its bulging pension deficit and stretching its brand into non-core areas, à la Tesco.

However, industry experts believe that food, which accounts for just over half of its total sales, is the most critical area he needs to tackle. On paper, M&S food is heading in the right direction. For the 13 weeks to 27 March, the retailer's UK underlying food sales grew by 1.8 per cent, which was the fifth consecutive quarter of improvement.

Despite this, many believe that M&S's food business has to find a reason for being, given its co-habitation with general merchandise in shops. In March, Sir Stuart Rose, the chairman of M&S, admitted: "We do have quite a complicated business. We have a business that you probably wouldn't invent. We have got a mass market clothing retailer and we've got a top-end food retail business." Nick Bubb, an analyst at Arden Partners, said: "They have never really got going spend between clothing and food customers."

While Mr Bolland will have to find a raison d'être for its 325 Simply Food outlets in the UK, which some analysts have advised it closes, arguably a more immediate issue is how M&S competes with Tesco, Sainsbury's and Morrisons, as well as a rapidly growing Waitrose.

Clive Black, an analyst at Shore Capital, says: "The world has passed M&S by over the past two to three decades. It was a world leader in highly innovative chilled prepared food but Tesco, Sainsbury's and Waitrose have eroded its advantage and become more proficient." However, Mr Black is adamant that the future for M&S lies in selling "high-quality, innovative and exclusive" food lines. "I don't see any point in M&S selling entry-level, value lines."

M&S's general merchandise unit, which is dominated by clothing, has performed better recently but even here major strategic decisions are required. In its fourth quarter, like-for-like general merchandise sales, including the internet, rose by 5.1 per cent.

But Mr Bubb says: "The challenge is that younger 16 to 24-year olds do not go to M&S, which in the longer term as they grow up will be a problem as their older customers die." Tony Shiret, an analyst at Credit Suisse, believes that M&S should use its larger stores to deliver a "better quality shopping experience" for the existing core customers but in its smaller shops the retailer should develop a new chain that is more relevant for younger mothers, such as with a more "credible fashion" offer. He said: "With the 30 to 55-year old group, they need to be holding their ground but they have not".

Mr Shiret also says that a smaller footprint format chain would help M&S expand overseas, where it has 328 stores in 41 territories. He said: "Opening 100,000 square foot stores in a country where you are not well known is risky whereas opening 10,000 to 15,000 sq ft is not," he said.

Certainly, M&S has had a mixed history overseas, which included exiting France in 2001. In the fourth quarter, its international sales fell 5.9 per cent, dragged down by the dire economies of Ireland and Greece. But Sir Stuart has said the international experience that Mr Bolland gained in his near 20 years at the brewer Heineken before joining Morrisons was a key factor in his hiring.

Robert Clark, the senior partner at Retail Knowledge Bank, says: "It is a global brand. There is considerable scope for M&S to expand, particularly in Europe, Asia and the Middle East."

He believes M&S could also stretch its brand into non-core areas, including telecoms and further financial services products, although they are late to the game compared to Tesco.

At a more operational level, there is a growing clamour for Mr Bolland to accelerate a huge conversion programme of about 100 small distribution centres into four national hubs at a cost of about £1bn. Oh yes, there is also the small matter of deciding what to do about its pension deficit, which the pending triennial review could reveal to be between £1bn and £1.6bn.

Given that he could pocket nearly £15m in his first year – half of which relates to compensation for payments accrued at Morrisons – expectations will be high. But Mr Shiret says: "The concern would be that Bolland will re-present the existing business but not deliver long-term strategic change."

Marc Bolland, Chief Executive

The fact that Marc Bolland did an excellent job at Morrisons is not in dispute. After he took the helm in September 2006, the Bradford-based grocer consistently delivered underlying sales ahead of its big three rivals, a feat which is still in evidence today, and profits surged.

He quickly identified that Morrisons had plenty to shoot at by improving the product offer and emphasising its fresh food credentials, which he relentlessly hammered with sharp, modern and effective marketing. His legacy to Morrisons was a 21 per cent jump in underlying profits to £767m for the year to 31 January 2010. But he also joined Morrisons at a time when existing board members, notably the finance director Richard Pennycook, had already started to turn around its trading fortunes and had corrected many of the system and process errors from its troubled acquisition of Safeway.

Therefore, his harshest critics, may reserve judgement on whether Mr Bolland is a genuinely gifted retailer until a few years into his tenure at M&S, which presents a more difficult challenge than what he faced at Morrisons.

Certainly, the hopes of the City and M&S shareholders are high for Mr Bolland, who supports Leeds United in his adopted country. On the day, M&S announced his appointment the rise in the chain's share price added to the fall in that of Morrisons' led to him being dubbed the $1bn dollar man.