Broker snap: M&S too focused on promotions

15th May 2009 10:35

With Marks & Spencer still undecided on the identity of its new chief executive officer, Investec has weighed in with some hard hitting advice for the new boss, whoever it may be.The broker has set out its own five-point plan to revive the fortunes of the High Street giant which, it claims, is too focused on competing with Tesco and AB Foods’ owned Primark on price.Investec believes Marks & Spencer’s increased reliance on sales and special offers is ‘teaching customers to shop on promotion.’Though the promotional activity may be increasing footfall the strategy risks ‘alienating the traditional customer and reducing the frequency of visits,’ the latter being a traditional strength of the company, Investec notes.The broker would prefer to see M&S give up on developing separate store formats. ‘Its primary focus should be to right-size group footage by location and catchment. For example, management needs to make proactive moves to address the company’s under-representation out of town,’ Investec said.Overseas expansion should be put on the back-burner while problems at home are addressed, the broker believes. It scathingly described M&S’s response to tough trading conditions as: ‘Beat up suppliers; tart up stores; er … that’s it.’On the subject of succession at the top, Investec does not see anyone on the management team as worthy of stepping into Sir Stuart Rose’s shoes since the latter’s elevation to executive chairman.‘We do not see the next chief executive as within the ranks, and indeed question whether the operational team needs to be strengthened in general merchandise.’Of more immediate concern to shareholders is the suggestion that the company should acknowledge pressures on its balance sheet by announcing a dividend cut when it announces full-year results on Tuesday, 19 May.Investec, which is forecasting full-year pre-tax profits for M&S of £620m, suggests that the full-year dividend should be cut to 15.5p, compared to 22.5p last year. This implies a final dividend of 7.2p, virtually half the 14.2p paid in the second half of last year.