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Can Marks & Spencer’s new CFO make his mark, and spark a return to the FTSE100?


Alastair Barlow examines the history of M&S leading up to its recent deterioration and loss of CFO Humphrey Singer. 

27th Feb 2020
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Every adult knows Marks & Spencer. Although not everyone will love it; my childhood memories include being dragged around M&S, House of Fraser and Jenners on Princes Street (being very bored)!

However, not everyone may realise that this retailer was the first one to make £1bn pre-tax profits or that they fell out the FTSE100 for the first time (in its 35 year existence) last September – shortly thereafter their CFO resigned, after only 14 months in post.

So, who has the job of taking it back into the FTSE100 and how are they going to do that?

Well, to give you some size and scale, Marks & Spencer is primarily based in the UK, sells into 57 countries from 1,487 stores, and 35 websites around the world. They employ over 80,000 people who serve about 32 million customers. They’re focused on delivering quality products at great value for money. Below are some relevant points before we get into the role of the outgoing and incoming CFOs.

The rise, fall and uncertainties of Marks & Spencer

  • Based on a reputation of selling British quality goods M&S grew from humble beginnings in 1884 to become a staple on the UK high-street
  • In 1997 it was the first British retailer to make a pre-tax profit of over £1bn
  • Shortly thereafter results plummeted to a relative-low in 2001 of just 10% what they were a few years before
  • Arcadia failed a takeover in 2004; M&S announced a recovery plan and sold off M&S Money to HSBC
  • Steve Rowe took over as CEO on 1 February 2016
  • Helen Weir, resigned as CFO in March 2018 and Humphrey Singer was appointed in July 2018
  • A wave of store closures, management changes and transformation programme followed
  • In September 2019, the high-street retailer is demoted outside the FTSE100 for the first time since its inception, over 30 years ago
  • Humphrey Singer resigns just 14 months after being in the post; officially left on 31 December 2019 (making that four CFOs in the space of six years; Alan Stewart, Helen Weir, Humphrey Singer, David Surdeau)
  • Eoin Tonge will make that five when he joins in June 2020.


The fall and fall of Marks & Spencer’s share price

The fall and fall of Marks & Spencer’s share price

The fall and fall of Marks & Spencer’s profit before tax

The fall and fall of Marks & Spencer’s profit before tax

The CFO role

As I’ve said many times before, the role of the CFO is wide and encompassing and the CFO is taking on more and more. It’s a relatively lonely position because of the technical background they possess. At M&S, Singer was officially responsible for “group financial performance, IT, investor relations and data governance.”

Data in a retailer is everything. Managing financial data is one thing across countries and verticals but the operational data from 32 million customers is huge. Ensuring single-version, high-quality data that is well-governed is a role in itself and using this huge volume of data to drive insight is absolutely key to a retailer.

It’s reported that “nothing sinister” happened and Singer’s exit was due to the intensive nature of the restructuring underway. However, he was also seemingly key in the Ocado joint venture and this may have been where he dropped the ball in the eyes of Chairman, Archie Norman.

In order to fund the Ocado deal, M&S issued a £600m rights issue at a significant discount, which ultimately pushed it outside the FTSE100. However, the deal (discussed in more detail below), could well be one of the most significant to maintain relevance in this new digital world.

I will say it again, the role of the CFO is all-encompassing; from financial performance, IT, data, investor relations, analytics, business-wide performance and, as we’ll see below, large-scale transformation programmes. It’s a good reminder to self-assess how far-reaching your own CFO skillset is and how you are going about maintaining relevance.

What game is M&S in?

While it is probably best known for good quality clothing, it is in the food, clothing and home, services (M&S Bank and M&S Energy) and property businesses. But what sells the most? Well, in fact it’s food! In 2019 they sold £5.9bn of food compared to £3.5bn of clothing and home. This is in part thanks to the Simply Food stores.

Domestic revenue split between Food & Clothing/Home over time

Domestic revenue split between food and clothing/home over time

As M&S has seen the trend to food increase over time, they’ve sourced a CFO that certainly has the credentials. Incoming Tonge spent 14 years at Greencore (the sandwich group), across treasury, investor relations, group comms, grocery division MD, group strategy, corporate development director and CFO. Although, clearly Greencore is not in the public eye as much as M&S which is something Tonge will need have to acclimatise to.

Where are the synergies in a food business and a clothing/home business? Well, they essentially sell their products and services to the same customer demographic and benefit from leveraging this same customer data. Like most large groups, it is investing in data analytics and digital capabilities to create a strong customer insight function to better leverage this information to build customer loyalty, and thus increase customer lifetime value across the group.

Interestingly M&S is looking to reduce full-line stores by a net 65 over the next few years, while also looking to increase food stores by 50 – a clear signal that food will continue to increase.

On the flip side, Jill McDonald was brought in back in 2017 to head up clothing and home and beauty with zero experience in the fashion industry, she lasted just two years before she was ousted.

So, where does that leave their clothing business, the area that’s had the most criticism in recent years?

Transformation programme

If you read Steve Rowe’s Chief Executive Statement in their 2019 Strategic Report, it’s a shopping list of management consulting projects. Like many large groups, they want to be a data-first or data-driven business; which in the world of retail is an absolute necessity. Their transformation programme crosses people, digital, property, strategy among others.

Singer’s CV highlights that he has “significant experience in delivering the transformational strategies of large listed businesses” so it’s a bit of a surprise that he left after only 14 months given his experiences would match up to the high aspirations M&S has with their change programme.

However, in Singer’s own words “The transformation taking place is of a scale, depth and pace not seen before at the company.” With his departure during the transformation programme, does it suggest that financial benefits are elusive and extreme?

I’ve highlighted just a few of their transformation projects that are more closely linked to the CFO role.

Transforming our leadership and accountability

There have been a number of changes in the leadership team. The CFO role is key in any business but even more so in a FTSE100/FTSE250 group where there are many eyes on your business and the market reacts resulting in share price fluctuations.

Becoming a digital-first retailer across M&S

This relates to the above point but whereas M&S is a DTC business, Greencore is B2B and so there are differences Tonge will need to embrace if he’s to also take on the role of data governance to help drive M&S to become digital-first.

Protecting the magic and modernising the rest in food

I wouldn’t ordinarily relate the CFO to this one but clearly Tonge has vast experience in the food industry and he’s clearly been brought in to leverage the 14 years he spent at Greencore. Expect a greater Food revenue mix going forward.

Creating a high-quality store portfolio fit for the future

Any property rationalisation, acquisition, development programme will undeniably involve the CFO assessing a multitude of aspects. I can imagine Singer amassed some good experience in this from his Dixons days but I’m not as confident Tonge will have had as much exposure.

Cost savings of at least £350m by 2020/21

With any transformation, there is the inevitable search for top-line growth, margin improvement but also other operating model cost-cutting and this one is no different. M&S is looking to chop £350m off their overheads. They could always take a leaf out of 3G Capital’s book and adopt zero-based budgeting, responsibly.

Joint venture with Ocado

The integration and synergies with the Ocado joint venture will be key to a large part of the food growth. This will be where Tonge should absolutely shine, and M&S get their money’s worth in their strategy.

I’ve always taken the view it’s much better to join a business in trouble than a business on an absolute high because you can, in theory, make a much more positive impact on the business, after, of course, making your stamp by creating a new baseline to work from.

At the end of the day, the CFO will own the benefits case. I would expect any incoming CFO to challenge someone else’s benefits case, so expect Tonge to do just that. But either way, he needs to be ready to roll up his sleeves, ruffle some feathers and make sure he delivers on the business case!

For me, transformation is now just another required skillset for the modern, progressive CFO or as the role is more commonly being renamed, Chief Performance Officer.

Digital competition

This will sound like a broken record (have a read of my HMV article on… err… records) but it’s another high-street retailer that has struggled to adapt to a changing environment.

However, one key difference compared to HMV (or the Kodak and Blockbuster stories) is their uniqueness; the M&S brand is built on quality, value and customer service. The other companies I’ve mentioned were largely selling commoditised products – camera film, CDs and DVDs.

HMV’s latest reincarnation appears to embrace an experiential ‘clicks and mortar’ focused strategy which is much harder to break. This is also one of its high-street neighbours saving grace; M&S has a very strong customer experience which is backed up by their high NPS score across stores and M& at 68 and 54, respectively. To put this into perspective, anything above 50 is considered excellent.

Another key difference is the buyer demographics of M&S. Whereas music lovers are continually refreshing with a young entry age, M&S is more targeted towards an older population; one that’s less technologically savvy.

So, while they absolutely face competition and have seen other retailers such as Next (£9.0bn) and even (£3.6bn) overtake their market valuation (£3.49bn), they still have a relatively loyal customer population… for now.

But as mentioned earlier, M&S is actually more in the food business than clothes/home business (62.5% of revenues came from food in 2019). While I’ve bought food many times in an M&S store, I confess I’ve never bought any food on M& so I wasn’t aware before writing this article that it’s something people would do!

However, they may have addressed this mental block with their recent joint venture with Ocado where they acquired 50% of Ocado for a total consideration of £750m. This will see Ocado deliver M&S groceries from September 2020. Not only does this enable them to increase their grocery market share but also target synergies, understand a greater pool of customer data, reduce customer acquisition costs through leveraging their existing M&S customer database and expand sourcing agreements.

They still have a lot to do, but as a high-street retailer, it is certainly still in the game tapping straight into the superior Ocado proprietary technology. This deal has been driven by the outgoing CFO so to a certain extent, in 14 months, he’s done his job!


Who wouldn’t jump at the chance to take the top finance spot at Marks & Spencer?

It may not be the coolest brand in my opinion, but it certainly is an iconic British high-street brand. Add to that, it’s just fallen outside the FTSE100 and in the early phases of a large-scale transformation programme, it’s an awesome challenge with relatively little downside and huge upside!

I wish Tonge the best of luck – let’s hope he’s the man for the job to transform M&S alongside Steve Rowe (and that he doesn’t piss Archie Norman off!).

Replies (11)

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By accountright
27th Feb 2020 10:21

Steve Rowe is the problem. M&S has been on the decline since he took over. Promotion of food took priority to the detrement of clothing and home.

Thanks (1)
Replying to accountright:
Alastair Barlow
By Alastair Barlow
27th Feb 2020 12:50

Thanks for your comment. It certainly seems that way. What do you think of the Ocado deal? And do you think the CFO should be challenging the strategy more?

Thanks (0)
Replying to AlastairBarlow:
By accountright
27th Feb 2020 13:40

M&S are moving into unknown territory. Their food offerings are never going to be on a par with the likes of the big supermarkets and they are never going to take enough market share to make this venture viable. Goodness knows the big supermarkets are struggling and face fierce competition form the likes of Aldi and Lidl.
And yes, the CFO should be challenging the strategy more, but I think Steve Rowe will push his own agenda through any challenges made.
This is my personal opinion, having been a loyal M&S shopper for years. I hardly go in there now as the range of clothing is really frumpy and the home wear is over priced.

Thanks (1)
Paul Layte
By Paul Layte FCA
27th Feb 2020 14:36

Good article, remember this is a business that not that long ago that still had different grades of carpet on each side of the hallway on certain floors of HQ and you needed to be at a certain management grade to walk on the softer side and the board members each had a car and driver and when navigating the streets of London would drive in a defensive formation blocking traffic for the other to move through. This is what happens when you become the first retailer to make a £1bn profit. Culture changes slowly and as does strategy until you stare at the abyss. A challenged business model requires the smartest people in the room to fix and the bravery of a lion to slaughter sacred cows to enable change. Are the management team smart, brave and in the right room, building or street....for others to judge. The number of CFO's and Clothing Heads etc over the last few years suggests perhaps not.

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Replying to Paul Layte FCA:
Alastair Barlow
By Alastair Barlow
27th Feb 2020 21:11

Very good points - turnover of these roles is a good indicator something isn’t right!

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paddle steamer
27th Feb 2020 15:26

I suspect part of their problem may be some of their locations, whilst costs in sheds may be okay some of their high street units may struggle, especially if they are losing the higher margin business (clothes) to the lower margin food (though given their food pricing maybe margins are not that low). As the article mentions their demographic is getting older so it will not be too long before mortality damages profits even further.

If I were them I would more consider selling experiences in some sites, bars, cafes alongside the retail etc, online is a killer re some product lines and if they wish to be a high street retailer they need footfall- my wife shops sometimes with M & S re clothes, as does her mother, my daughter rarely ventures in; that is their problem.

(By the way for me it is not House of Fraser, for older Edinburgh inhabitants it is still Binns, where young dates often started by meeting under the clock with the pipers, albeit it is now to be a whisky experience )

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Replying to DJKL:
Alastair Barlow
By Alastair Barlow
27th Feb 2020 20:56

Thanks. Experiential is certainly the new game - the high-street needs to draw customers in for more than just product.

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By Brend201
27th Feb 2020 15:43

For me, it's all about attention to detail, so forgive me if I point out that someone has been afflicted by an overactive autocorrect. It's Eoin Tonge, not "Tongue".

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Replying to Brend201:
Alastair Barlow
By Alastair Barlow
27th Feb 2020 20:52

Thanks, and you’re right - I hadn’t realised they had been changed when proofed. Apologies to Eoin as misspelling someone’s name is something that forever frustrates me!

Thanks (1)
By C.Y.Nical
29th Feb 2020 10:56

On a far-off sunny summer's day my young wife who had an eye for fashion pointed out to me that many of the people we were passing in the street were wearing M&S - all age groups. She said their buyers had a good eye for colour and once you got your own eye in you could see the M&S colours tripping past in huge numbers.

And at that time M&S were almost invulnerable to the effect of rent reviews because they owned the freeholds of most of their shops. The M&S shop was frequently the "anchor" of the towns they were in. Zone A rents were often highest on either side of the M&S and fell away gradually from that focal point.

In their heyday M&S food was a bit of an afterthought - clothing was the big earner. It's sad but true that in the rag trade every brand has its day and when sunset comes there is never a new dawn. The only thing you can do is re-brand, like Chelsea Girl transforming to River Island. M&S tried that trick by letting St. Michael die and bringing in their other clothing labels but nobody was fooled. Their core female customer isn't in her twenties now, she's in her sixties or even older, and she doesn't like the decline in quality or the ludicrous (and failed) attempts to attract the younger customer by stocking trendy fashion items (which the younger customer doesn't want anyway). Their core male customer probably doesn't even buy his socks and pants there now, he gets them on line. He certainly doesn't want their suits - he stopped wearing suits a few years back.

And those freeholds became a liability as the years went by, tying M&S to town centres that had seen better days and never able to offer free parking to their customers.

But food was thriving and in fact keeping the whole ship afloat. It gave them a fighting chance of survival. So what did they do? Because they have completely lost the self-confidence (and in some areas the in-house skills) to run their own affairs they bought 50% of Ocado, thinking that Ocado will know how to manage a profitable transition to delivered groceries. The trouble is, nobody makes any money out of delivered groceries. The so-called high-tec online world of buying groceries on the internet and having them delivered is a con-trick of the first order, as Ken Morrison realised from the very beginning. And I cannot see how Ocado can be "integrated" with the M&S food offer without tarnishing the M&S food brand.

Successful turnrounds of big old businesses are much rarer than people believe. They do happen sometimes, but not here. I'm not saying M&S will go bust, but this is no time to own the shares. Sell.

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Replying to C.Y.Nical:
paddle steamer
02nd Mar 2020 11:13

A good summary of where they now reside .I spent happy times in the early 1990s reviewing unit occupier maps/sheets when we were expanding our Benetton units throughout Scotland, Marks location then, as you say, being the gold lode to sidle towards

Certainly retail is a sector I avoid, in the main, re my own direct investments (though these days am more investment trusts than direct holdings) , a few dabbles in and out of supermarkets possibly excepted ,though like Warren, getting slightly burned on Tesco was not much fun.

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