retail

Marks & Spencer’s turnaround looks like the real deal | Nils Pratley


Archie Norman, Marks & Spencer’s chairman, said he’d spotted a few “green shoots” in May, which sounded a brave call at the time. By August, though, the shoots had bloomed into a profits upgrade. Now there’s proper foliage: a forecast of profits this year of £500m, which is about £150m ahead of what had been expected, if one ignores the group’s perennial “adjusting items”.

Chief executive Steve Rowe said he won’t be claiming victory too soon “given the history of M&S”. Fair point: his predecessors were always too keen to pat themselves on the back – it usually meant the next setback was about to strike. But at least five “self-help” factors suggest M&S’s turnaround may be the real deal this time.

First, the group finally has a property strategy that recognises the need to shrink radically in the age of online retailing. The aim is to have 180 “full line” stores, versus 253 today. The willingness to bulldoze the Marble Arch store, and turn half the new building into offices, was a necessary icon-toppling moment.

Second, the website and logistics setup, source of many mistakes over the years, now seems to work. Third, the partnership with Ocado, launched between lockdowns, solved a strategic online puzzle at a stroke. The price of £750m for a 50% stake in the joint venture now looks excellent.

Fourth, Rowe has been brutal in cutting costs – 9,000 jobs went at the start of the pandemic. Fifth, M&S has culled a few in-house sub-brands and joined the trend for “platform” retailing with outside partners. Clothing and home sales rose only 1% in Thursday’s half-year numbers versus 2019, but it’s profit margins that matter. If the group has genuinely conquered its addiction to “friends and family” promotions – its poshed-up term for a grubby sale – that’s a meaningful advance.

It helps that Debenhams went bust, which wasn’t under M&S’s control. But one could equally say that running a conservative balance sheet, which Debs didn’t, was a form of self-preservation by M&S. It allowed a long parade of bosses to take a shot at reinvention. Most preached a version of Rowe’s “fix the basics” mantra, but he’s the first to do so credibly. Plenty can still go wrong (this is still M&S), but outright calamity now looks firmly off the agenda.

The vehicle-maker that makes Tesla look cheap

Tesla has converted the US stock market to the joys of valuing electric vehicle makers at wondrous multiples of sales. Now comes Rivian to take racy valuations to a new dimension. This is a company with an IPO price-tag of $65bn (£48bn) that recorded no revenues in its last trading period.

There is a vital extra piece of information, naturally: Amazon owns 22% of Rivian and has ordered 100,000 of its electric vans for delivery by 2025. So, yes, there will definitely be revenues – and, indeed, the company started selling its pickup truck in September.

Even so, the valuation looks other-worldly. The Amazon connection provides glitz, but the core customer has one hand on the steering wheel, which could become a limiting factor. Rivian can sell its delivery vans only to Amazon for four years, for example.

The $75,000-a-pop pick-ups could supply the extra oomph but that market is also Tesla’s. There’s room for competition, of course, but one lesson from the market leader’s progress over the years is that ramping up production is not straightforward. Setbacks will happen.

Rivian has merely arrived on the starting grid. A $65bn valuation almost makes Tesla, several laps round the track, look cheap at $1tn.

The Fed has some explaining to do

We obsess in the UK over the Bank of England’s wayward messaging over inflation and the timing of interest rate rises, but is the US Federal Reserve’s communication any better?

Well, one could say that the Fed has stuck to its “transitory” rhetoric more consistently. The grumble about Threadneedle Street is that the governor led the market on a merry dance by warming up investors to expect a rate rise this month and then didn’t deliver it. By contrast, the music from the Fed has been about a possible rise next year.

Yet the sight of the US consumer price index at 6.2% in October versus a year earlier, takes some explaining. It is the fastest annual pace since the 1990s. Yes, it could still all prove transitory if second-hand cars, energy bills and other big contributors fade out from here. But the latest data also showed prices picking up again in areas like hotels and leisure attractions, which fits less easily with the Fed’s narrative. A few more months of 6%-numbers and “transitory” will lose its meaning.



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