But cross the street to Marks & Spencer and it's like traveling to another country. A dowdy, respectable country where the T shirts never talk, and if they did they'd probably say, "No sex please, we're British." There's no music playing, and the decor would suit a supermarket. The place is hardly empty, but there's no waiting at the checkout. Hard to believe now, but Marks & Spencer was once considered not just the U.K.'s best retailer, but maybe even its best business.
Marks & Sparks, as it's affectionately known, has seen its pretax profit chopped in half since its banner 1997-1998 fiscal year. Last Christmas season's sales were a disaster, falling 5.1% on a like-for-like basis compared with the previous year, forcing management to admit that its clothing had an "inconsistent appeal." Documents leaked to the Guardian newspaper — which M&S says contained old estimates, but confirms as genuine — suggest that there are more declining numbers ahead. Now chief executive Luc Vandevelde, the Belgian turnaround artist brought in as chairman last year, has announced a dramatic restructuring that also is an embarrassing repudiation of the company's much ballyhooed expansion efforts of just four years ago. M&S is hiving off the iconic American haberdasher Brooks Brothers, which cost $750 million in the late '80s and is thought on Wall Street to be worth as little as half that sum now, and is planning to shutter its 38 company-owned stores in Continental Europe come hell or Lionel Jospin.
With the overseas baggage shed, there's nothing left for Vandevelde & Co. to do but fix the British stores. Updating M&S's style is only the beginning of their task. Pricing is a problem, too. A retailer may be able to be a little out-of-date, or a little more expensive — but it can't afford to be both. A shopper on Oxford Street could easily find better prices for stuff a lot like what M&S has to offer, though perhaps not always as well made (see illustration).
For a generation of middle-class Britons, says Bryan Roberts, an analyst at Retail Intelligence, "M&S was the store of first resort." Whenever you needed new knickers, or a mac, or new clothes for the kids, you marched down to the M&S knowing you could get them for a reasonable price. This built M&S into the largest clothing retailer in Europe, a title it still retains. But consumer attitudes couldn't be more different today. With an array of affordable choices on the high street, where you shop has become a shorthand for who you are. "Women no longer want to shop the same rails as their daughters and their mothers," says Richard Hyman of Verdict, a retailing consulting firm.
Trouble is, as the market is segmenting, M&S can't just go chasing after more favorable demographics the way a smaller company like Inditex, which owns the sizzling Zara chain, might. That would mean abandoning a big chunk of the $5.7 billion in clothing, shoes and gifts it sold in the U.K. alone in its last fiscal year. Hyman says that Marks & Spencer can address the new market only by creating stores within stores, something it is beginning to try. M&S has struck a deal with George Davies, the mass-market fashion guru of Next fame. But the Davies line will get just 76,000 of M&S's approximately 4 million square meters in the shops — a drop in the ocean.
At the same time the company has stumbled — and managers have had to forget about bonuses — Vandevelde has a big payday to look forward to. The Financial Times last week revealed that he's in line for a huge bonus of up to $1.15 million in cash and stock. A spokesman for M&S says he hasn't actually won that yet, but acknowledges that he's probably achieved the "qualitative and strategic" — that is, nonfinancial — targets in his contract. The news has been a p.r. disaster in Britain, and has only further fueled French fury.
Surprisingly, though, M&S's stock price is up more than 50% from its one-year low. What gives? Value investors have taken to the company in part because of its vast real-estate holdings. Vandevelde plans to sell about half of that as part of his plan to give $3 billion back to shareholders. In addition, M&S can brighten its profit picture just by getting better prices from its suppliers. Despite its huge market share — which ought to give it buying muscle — M&S is thought by analysts to have some of the worst clothing margins in the industry. Dennis Wyles of Aegon Asset Management, which owns the stock, sees M&S putting a lot of effort into improving its buying process. If that works, even a small improvement in sales could have a big bottom-line impact. "People are waiting for tangible evidence that [sales] have turned around," says Wyles. "But as soon as we get that sign it will be too late." In other words, M&S shares will no longer be much of a bargain.
And what if the sign never comes? One need only look out the front door of the Oxford Street Marks & Spencer to get a glimpse of the chain's nightmare future: a C&A department store that's been empty since January.