A race against time to put success back into M&S

The retailer must act now to tackle tired clothing ranges and Fifties-style corporate culture, investors tell Abigail Townsend and Clayton Hirst

Roger Holmes did not, it can be safely assumed, have a good Christmas. The chief executive of Marks & Spencer had the unenviable task last week of revealing disappointing sales over the festive period and a slide in market share. M&S's head of fashion, David Norgrove, was then ousted.

But even tougher times now loom for Mr Holmes, who took over in 2002 from Luc Vandevelde, the high street giant's turnaround architect. "He deserves a bit more margin," says Simon Davies, an institutional investor at fund manager Berry Asset Management, "but Vandevelde has got to make a call [on Holmes] in the next year or so." Another investor goes further: "There needs to be pretty strong evidence in the next six to nine months of further change."

It is widely agreed that Mr Vandevelde, now chairman, stopped the rot at M&S. To take the recovery forward, however, Mr Holmes needs to tackle five core problems: bureaucracy, management, womenswear, childrenswear and logistics.

Arguably the greatest challenge is to clear out the bureaucracy that has dogged M&S for decades. Even small decisions are made by committee, and critics say that Mr Holmes, a former management consultant, relies too heavily on the unwieldy M&S machine before taking action. Despite a cull of managers in the late 1990s and Mr Vandevelde's stab at changing the corporate culture, which will culminate later this year when the head office is relocated from Baker Street to Paddington, the retailer appears to have more levels of management than the civil service.

One ex-M&S manager, who asks not to be identified, says: "While there were big culls in 1998 and 1999, it never fundamentally changed M&S's behaviour. People have changed their titles and layers of management have gone but the 1950s management mentality is still there."

Some feel the situation is actually compounded by Mr Holmes. "I don't know if he's really got the balls to go to Luc and say, 'This is want we need to do'," says Mr Davies. "You feel he would get the support if he did."

Lurking within the bureaucratic machine is management, the second problem to be tackled. Mr Holmes may have a limited time to sort out the mess, but he and Mr Vandevelde still have a solid following in the City. On paper M&S has a top team, with the likes of former Selfridges boss Vittorio Radice and former Warehouse managing director Yasmin Yusuf - M&S's highly regarded creative designer - on its operating committee.

But the retailer struggles to attract new talent and hold on to its rising stars. Both Mr Radice and Ms Yusuf are rumoured to have itchy feet (persistent rumours link the former with the Italian luxury brand Gucci), and M&S has in the past had trouble filling crucial roles. This does not bode well for its efforts to replace Mr Norgrove.

An impressive list of potential new heads of fashion is already being bandied about. It includes Belinda Earl, previously chief executive of Debenhams; Kim Winser, head of the jumper label Pringle and a former number two at M&S's womenswear division; and Maurice Helfgott, the M&S careerist recently promoted to head of food. But for outsiders such as Ms Earl, the level of bureaucracy could be a deal breaker, as could the internal politics, which are said to be rife.

There is also a problem further down the management chain. Successful retailers need a mix of people with fresh ideas, and managers who put them into practice. Richard Hull, head of retail at Cap Gemini Ernst & Young, says: "In the mid-1990s there was a good balance of entrepreneurial people and managers who said: 'Let's fast track this in six weeks.' Today, M&S is lacking the entrepreneurial types who have the retail flair."

On the shopfloor, there is another basic, yet perhaps more crucial, problem. The womenswear range has already been revamped to some extent: one of Mr Vandevelde's more applauded moves was to bring in George Davies, the Next founder who came up with the Per Una range. A design partnership with the upmarket lingerie maker Agent Provocateur helped pep up M&S's "boring" underwear.

Yet there are concerns that mainstream products such as workwear and knitwear have been left to slide. Berry's Mr Davies says: "The bit they got wrong was the mid-market, where they don't have a competitive product to take on Karen Millen or even Next, which M&S would consider beneath them.

"A lot of focus went on the new ranges while workwear was seen as a staple that didn't have to be touched. But the game's been raised elsewhere."

The other perennial thorn in M&S's side is childrenswear. Some ranges, such as the David Beckham-sponsored DB7, have done well, but they are few and far between. One retail expert claims the new head - Anthony Thompson, who joined from Gap last year - is finding it an uphill struggle, meaning that Mr Holmes is spending far more time on the division than he would like.

The problem is that M&S has a natural disadvantage in childrenswear. "Kids-wear is a very competitive market, and Asda and Tesco in particular are constantly pushing down on price," says Iain McDonald, retail analyst at Numis Securities. "M&S must focus on differentiating the product because if it tries to compete with Wal-Mart [the owner of Asda] on price, it is going to get killed."

The fifth and final issue awaiting Mr Holmes's attention is logistics. In the past five years, Mr Vandevelde has taken great strides in modernising the retailer, including sourcing clothes in countries outside the UK. But concern remains that M&S has not got to grips with the new systems. In research published just before Christmas, Credit Suisse First Boston noted: "M&S has found overseas sourcing more difficult to manage than in the previous set-up." It goes on: "We believe M&S must introduce the structures necessary to reduce its dependence on third parties in the supply chain. We do not believe it is currently contemplating this and its development work is focused on modification of the current system rather than anything more far-reaching."

This, then, is Mr Holmes's job over the next few months. It is universally accepted that Mr Vandevelde had the easier task of paring M&S back to its core values and ripping out costs. It is Mr Holmes's bad luck that the really hard work, it now seems, has only just begun.