How Luc and George put Marks and Sparks back in fashion

Retailing: Two years ago, the UK's top high-street chain was in crisis. Yesterday, it posted results that pointed to a remarkable recovery

Two years ago, when Luc Vandevelde set himself a deadline of about now to reverse the decline of Marks & Spencer, nobody gave him a chance of success.

But yesterday, after announcing a 16.6 per cent jump in sales of clothing, footwear and shoes, even Mr Vandevelde had to admit that he had met the self-imposed ultimatum. "There is certainly very good signs of recovery. This is the second rather convincing quarter of positive trading," he said.

The increase, which beat City expectations, showed that the retailer was winning back the hearts, minds and, most importantly, wallets of the British consumer for the first time in nearly four years. All of a sudden, the golden age of Marks & Spencer, when it made £1bn of profits a year and was valued at £14bn, no longer seems such a distant memory. Perhaps the five intervening years of falling sales, a tumbling share price and boardroom wrangling can finally be laid to rest.

The strong trading figures for the first three months of the year, which followed a magical Christmas performance, were led by a change in strategy that has seen the one-time king of the high street drop its paternalistic approach to retailing for something a good deal more populist. In clothing terms, this has meant the end of the "one size fits all" motto in favour of sub-brands for core customer groups.

The "Perfect" campaign, launched in the autumn, which played to M&S's traditional strengths of well-made wardrobe staples at good prices, was the catalyst. The bulk of the bestsellers in the past three months came from this range: zip-up cardigans, bootleg trousers, white shirts.

Perfect was swiftly backed up in September with the "Per Una" range, inspired by one of Mr Vandevelde's most important signings, George Davies of Next fame.

Translated as "for one woman", this was a collection that promised to bring the catwalks of Milan, New York and Paris into the M&S stores of old. The designs feature a string of mini-collections aimed at the 25 to 35 age group. Earlier this year, the "Blue Harbour" collection for men followed. Both ranges were instrumental in driving clothing sales during the past quarter.

It all seems so simple. But when the silver-haired Mr Vandevelde was parachuted in from the French retail chain Promodes to St Michael's Baker Street headquarters in February 2000, his was a desperate mission.

Years of boardroom feuding, which started in autumn 1998 with the company's first profits warning since it joined the stock market in 1966, had taken their toll. Regiments of board members had left, such as Sir Richard Greenbury, the M&S veteran who spent 46 years at the group, including eight as chairman and chief executive.

Even Mr Vandevelde's arrival was awkward – for the first seven months he had to share the reins with Peter Salsbury, Sir Richard's successor, before his way was clear.

On the cards was a complete overhaul that needed to see M&S wave goodbye to a culture of complacency, bred by the sheer scale of its high street dominance, before it could regain its place in the affections of a nation of shoppers.

The crux of the problem was that the company had gone out of fashion. Richard Hyman, head of the retail consultancy Verdict, says: "M&S was really a victim of its own success for many years. Until 1997-98, M&S was regarded not just as the best retailer in Britain but the best business in Britain."

A host of rivals, such as Next and Debenhams, jumped at the chance to gain the upper hand, and M&S's dwindling profits – down from £1.2bn in 1998 to a paltry £146m in 2001 – told the rest of the story. The once ubiquitous green carrier bag looked in danger of disappearing from the nation's high streets, to be replaced by a plethora of alternatives, from Littlewoods to River Island. Only in food did the pioneer of the packaged ready meal stand proud.

What followed was a complete revamp of corporate and retail culture. Mr Vandevelde set the mood in April last year when he waived his £816,000 bonus. Previously, M&S chieftains had become infamous for their ability to cause "fat cat" pay rows, sweeping the group's declining profitability under the carpet when it came to salary reviews.

While he reined supreme, Sir Richard could afford to treat the media contemptuously. Under Mr Vandevelde, a more accommodating approach applied and M&S opened its doors to the press, hiring a leading City public relations firm and beefing up its own corporate communications team – all signals that the group was ready to listen.

In the stores, too, things changed. An £80m refurbishment programme helped to kickstart M&S's change of image, creating, in Mr Vandevelde's words, "a modern and exciting shopping environment". The shop floors were reorganised into "lifestyle segments".

A man wandering into the Blue Harbour section of the High Street Kensington branch last weekend would have been able to pick up a range of accessories to match his outdoors lifestyle, from compasses to watches. A further £40m is to be spent this year completing the programme.

But even last autumn, as the clock ticked towards his deadline, the odds were against him. Then, in November, M&S reported its first increase in half-year profits since May 1998. Now analysts are forecasting that full-year profits will rise for the first time since the same year. At £640m, the high street giant will still be a shadow of its former self, but at least it is moving in the right direction.

More significantly, yesterday's comments from M&S showed that it was taking nothing for granted. Despite a 10.6 per cent rise in underlying sales across the group for the 11 weeks to 30 March, Mr Vandevelde cautioned that the path to full recovery was a long one. He pointed out that the sales increases were achieved against the backdrop of a buoyant clothing market, where low interest rates and high consumer confidence had driven retail sales beyond expectations in recent months. "When we get back into normal trading patterns we expect that clothing sales will be in line with inflation, falling to 3 to 4 per cent [increases] in the second half," Mr Vandevelde said.

This prudent approach drew praise from most City pundits. "This is a management that has been significantly influenced by events in recent years and learnt from its mistakes. It's not going to kid itself that a couple of wins represents an outright victory," Mr Hyman of Verdict said.

There is further to go, of course. Profit margins are well below their 13 per cent zenith four years ago. And M&S shares are some 250p short of their peak. With an incentive package worth £20m over five years if Mr Vandevelde completes the recovery, the dapper Belgian has a fortune riding on the fickleness of the British high street.

THE BRAND MAN

George Davies, designer of M&S's 2001 women's range

The George Davies fashion formula is legendary. He built Next into a high-street icon in the Eighties. And he gave his name to the Asda clothing label, George, creating the first credible clothing range offered by a UK supermarket. But it was, perhaps, his task last year of creating a brand that would rescue the ailing fortunes at Marks & Spencer that will secure his crown as the quintessential British retailer. The entrepreneur started work at Littlewoods, where he used to make stealth trips to his nearest M&S to conduct market research. With Next, Mr Davies changed the UK's retail scene, launching a chain that offered serious fashion at affordable prices. He left Next for Asda in 1990, where he stayed until it was taken over by the Wal-Mart chain in 1999. At Asda he took his mission of budget fashion one stage further and created a range that women could pick up with their weekly shopping. "It was similar to M&S – clothing with some style in a food store, but at a better price," he said. Eight months on from the launch of Per Una – this time for his retail hero, M&S – all the evidence suggests that Mr Davies's magic touch is working again.