Outlook: Not good enough M&S confirms worst fears

Shell man speaks; Rothschild devalued
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The Independent Online

The turnaround strategy at Marks & Spencer has plainly stalled badly, but how confident can investors be in Roger Holmes' insistence that eventually it will come good? Perhaps understandably, the M & S chief executive won't commit himself to a timescale, yet he cannot for ever keep promising jam tomorrow and the final quarter sales figures certainly give cause for the gravest possible of concern.

Across the range from food to homewares and clothing, like for like sales were significantly down. More worrying still, footfall continued to slip, demonstrating a continued decay in customer perceptions of this one time doyen of the high street. Mr Holmes candidly admits to some fairly basic retailing errors in the period under review.

In foods, the company underestimated the strength of the shift to low carbohydrate diets, which seems something of a miss given the publicity surrounding them. Flower sales were also poor for Mother's Day, again because the company failed to anticipate the shift in tastes away from traditional flower baskets to more contemporary flower arrangements.

In homeware, the disruption caused by the shift to new formats prompted a serious slippage in sales, but it was again in clothing, where the bulk of the company's revenues are generated, and particularly knitwear, that the real damage was inflicted. Having clawed back 1 per centage point of the market share lost since the company's glory years in the late 1990s, M & S is again on a deteriorating trend.

Mr Holmes promises an acceleration of initiatives to halt the slide - strengthened management, sharper prices, greater range, clearer segmentation, new stores and a remodelling of some older stores to create a more "inspirational shopping environment. Whether these changes will work is anyone's guess, but there is certainly an air of too little, too late about the company right now.

From a presentational point of view, the lesson of yesterday's disastrous sales figures is that it doesn't pay to declare the turnaround complete at too early a stage. When Luc Vandevelde became chief executive four years ago, he gave himself two years to show clear signs of a turnaround. As the two year horizon approached, he declared the recovery fully underway and slipped effortlessly out of the chief executive's shoes into the chairman's suite.

As it turns out, he had done no more than paper over the cracks. The turnaround was more indian rope trick than reality. Mr Holmes is left struggling with the deeper challenge of how to generate decent levels of top line growth in what may be a period of pronounced slowdown in consumer spending from what has become a less than fashionable retail format. As Sir Peter Davis has already discovered at Sainsbury, and Richard Baker is fast finding out at Boots, making these once mighty retailers turn on a sixpence in what's become a hugely competitive market is well nigh impossible.

The success of Tesco disproves the theory that this is because retailing, after a long period of consolidation into large groupings, is again becoming more fragmented as choice multiplies and fashions change. Rather, it may be more a case of once a format and way of doing things is allowed to slip behind and become outdated, it becomes extraordinarily difficult to catch up again. M & S finds itself classically squeezed between the new generation of "value" retailers and more fast moving, fashion retailing.

Still, investors can at least be thankful for small mercies. There was no profits warning to accompany the sales disappointment, nor, as with Boots, were there any nasty surprises about the level of capital spending thought necessary to turn the beast around. M & S spending will remain at a relatively high but consistent £400m per annum. At the low level they've sunk to, the shares look reasonably well supported by the dividend, which for the time being looks sustainable.

As for Mr Vandevelde and Mr Holmes, the position is not yet so parlous as to demand their heads. Yet M & S continues to cry out for an inspirational retailer capable of leading the company out of the wilderness. Is Vittorio Radice, former chief executive of Selfridges, now elevated to the role of head of general merchandise at M & S, the new messiah, or will it require a private equity bid finally to shake the retailing giant out of its slumber? We'll see.

Shell man speaks

Walter Van de Vijver, deposed head of exploration and production at Shell, seems to have decided that enough is enough over the reserving fiasco that claimed his scalp. After weeks of rumour and hearsay, he's spoken out to say, "it wasn't me, guv", or at least, "don't try and make me a scapegoat because we were all in it together".

Shell promises to publish within a week or two an internal report into the affair, produced by the US law firm Davis Polk & Wardwell. This is widely expected to lay blame squarely at the feet of the two sacked Shell executives - Mr Van de Vijver and his chairman, Sir Philip Watts. Fearing the worst, Mr Van de Vijver has got his own shot in first. Regrettably, he raises more questions than he answers in his attempt to correct what he regards as an "inaccurate", "misleading" and "incomplete" depiction of his role.

None the less, in presenting himself as an innocent victim of the affair, who worked diligently to expose and correct the mis-statement of reserves, he does raise an intriguing point. Shell works on the basis of collective management responsibility, which many regard as the root cause of its problem. Mr Van de Vijver contends that the Committee of Managing Directors (CMD), which would have included the new chairman, Jereon Van Der Veer, were informed of the reserves classification problem the moment Mr Van de Vijver became aware of them. Moreover, he claims regularly to have communicated to the CMD the nature and the quantity of the non-compliant reserves as they unfolded.

For his part, Mr Van Der Veer admits to some prior knowledge of the reserving problem but not to the extent of it, an issue he thought best left to exploration and production to sort out. What emerges is a lack of management control and accountability which surely lies at the heart of this affair. In the ensuing blame game, the internal report will attempt to confine guilt to those intimately involved in exploration and production, as it must, for otherwise the entire CMD would be forced to resign. Yet it is clear the failure in controls that let the reserves to be overstated was much wider.

So was it incompetence, overenthusiasm or conspiracy that led to the mis-classification? The internal report ought to provide answers, but with a posse of American lawyers champing at the bit to sue, don't hold your breath for a worts and all account.

Rothschild devalued

The name of NM Rothschild has been virtually synonymous with gold from the moment Nathan Mayer Rothschild moved to England to found the City merchant bank in the late 18th century.

What's more, ever since the system of twice daily "fixes" for the London gold price was established on 8 September, 1919, the ritual has been held in Rothschild's offices. It's a good system that has stood the test of time, so you might have thought it would be worth something. The new broom at NM, David de Rothschild, has decided otherwise, and following a strategic review, he's sweeping out the old by withdrawing from commodity sales and trading activities, which is no longer considered a "core" area of activity for the bank.

As a result he's also withdrawing from the twice daily London Gold Fixing and abandoning its chairmanship. There's only one word to describe this decision - "stupid". All organisations have to evolve and move on, but to abandon a century old tradition which costs little to maintain but whose worth in terms of reputation and goodwill is beyond quantification is an act of almost wanton destructiveness. He's obviously too distant from the City to know it, but David de Rothschild has just further devalued an already fast fading brand.