Marks & Spencer is to be ejected from the FTSE 100 index for the first time, it has been confirmed.
The widely expected relegation was announced after markets had closed for the day on Wednesday.
The move will not come into effect until later this month – on Monday 23 September.
Sky’s business presenter Ian King reflects on what this means for the centuries-old retailer:
One would think, reading some of the commentary surrounding Marks & Spencer’s impending relegation from the FTSE 100, that it is the greatest catastrophe to have befallen the venerable retailer for many years.
Yes, relegation from Britain’s leading stock index will be a blow to the prestige of many employees, particularly as M&S is one of only 28 companies still in the Footsie who were members when it was launched 35 years ago.
Yes, impending relegation will have prompted some index tracker funds, which seek to replicate the Footsie’s performance, to have sold M&S shares in advance, although that selling will now be largely completed.
But the demotion is really only symbolic of the long-term decline in M&S’s fortunes rather than reflecting some new misfortune.
As Archie Norman, M&S’s chairman, has said: “When I went to ITV [as chairman] we dropped out of the FTSE 100, the sky didn’t fall in. The business was the same business the day after.”
He makes the point that management’s focus is not on the next three months, or even the next three months after that, Footsie reshuffles taking place every quarter. Rather, the focus is on longer-term value creation, five years out.
He is right, of course. Millions of people will continue to walk into M&S’s stores or visit its website on the day relegation takes place. Its 80,000 employees will continue to serve them. Life will go on.
And, proving the point, the seeds for this relegation were sowed many years ago. Arguably, the rot was setting in even on the day of its greatest triumph in 1998, when M&S became the first UK retailer to report annual profits of more than £1bn.
Then, the company was run by Rick Greenbury, an old style autocratic chief executive who, after Derek Rayner, was only the second boss of the business to come from outside the extended family of its co-founder Michael Marks.
Sir Richard, as he became, fell foul of shareholders when he attempted to combine the post of chairman and chief executive. Worse was to follow as a boardroom battle to succeed him erupted.
Peter Oates, who lost the battle, left in November 1998 and Peter Salsbury, Sir Richard’s chosen heir, went just over a year later. By then, M&S had started losing market share in fashion, not only to mid-market rivals such as Next and H&M but also to the burgeoning – and cut-price – offerings of the supermarkets. The boardroom turf wars had taken management’s eye off the ball and profits slammed into reverse.
A succession of executives sought to stem the decline. The first was Luc Vandevelde, a Belgian under whom the successful Simply Food format was first pioneered by Justin King, later to become chief executive of Sainsbury’s and who now, ironically, is a non-executive director of M&S.
Next came the ill-starred Roger Holmes, a former management consultant, whose expensive attempts to take M&S into upmarket home furnishings backfired. The loss of market share intensified and Sir Philip Green, scenting blood, pounced. His £9.1bn takeover bid, launched in May 2004, was seen off when the M&S board recruited Stuart Rose, an M&S old boy who had garnered a City fan club from his leadership of Argos and Arcadia Group.
For a while, it seemed as if Mr Rose – who was later ennobled by David Cameron – had pulled off a turnaround, even getting profits back up to £1bn for a while.
But competition in the fashion sector intensified, thanks both to the rapid rise of online retailing and by the boom in “fast fashion” as provided by the likes of Zara and Primark. Lord Rose’s successor, Marc Bolland, was unable to stem the decline in sales of clothing and home furnishings although, during the period, food remained a strength for M&S.
By the time Steve Rowe, an M&S lifer, became chief executive in April 2016 it was clear that M&S, like many traditional high street retailers, was trading from too many stores and was still labouring under a stifling bureaucracy that successive managements had failed to untangle.
Its logistics and online operation, supposedly rebuilt by Mr Bolland, continued to misfire. Mr Rowe has found it tough going at times.
To that extent, the turnaround that Mr Rowe and Mr Norman – a turnaround expert whose rescue of Asda in the early 1990s remains one of the most inspiring stories ever seen in British retailing – are seeking to accomplish will take time.
As Mr Norman told shareholders last year: “This business is on a burning platform. We don’t have a God-given right to exist and unless we change and develop this company the way we want to, in decades to come there will be no M&S.”
The company is now undergoing the most radical change in the 20 years since Sir Richard Greenbury left. Hundreds of stores are being closed, others are being converted to the Simply Food format, while M&S has also struck a £750m deal with Ocado that will see it selling food online for the first time. These are major strategic steps that, in the short term, have eaten into profits and obliged M&S to cut its dividend to shareholders as it sacrifices short-term popularity among investors for longer-term – and hopefully more sustainable – success.
Accordingly, while the share price been falling steadily for four years, the slide intensified earlier this year. That is what has led M&S to relegation from the Footsie.
In fairness to M&S, though, the stock market has fallen out of love with the wider retail sector.
Once M&S has gone, there will be just six retailers left in the index – Tesco, Next, JD Sport, Sainsbury’s, Morrisons and Kingfisher, the owner of B&Q (Burberry, which some might regard as a retailer, is classified by the London Stock Exchange as being in the “personal goods” sector. Associated British Foods, the owner of Primark, is classed in the “food producers” sector). Sainsbury’s, Morrisons and Kingfisher all hover close to the Footsie’s relegation zone themselves and may too at some point drop out.
By contrast, 10 retailers were founding members of the Footsie in January 1984 which, apart from M&S, also included Boots, British Home Stores, Burton Group, Great Universal Stores, House of Fraser, MFI Furniture, Tesco, Sainsbury’s and Sears.
The FTSE 250 index – the “second line” index M&S will shortly join, also contains more retailers than the Footsie. M&S will join the likes of B&M, WHSmith, Dunelm, Dixons Carphone, Sports Direct, Pets at Home, Card Factory and Watches of Switzerland in the mid-cap index.
There is one more factor to note in this story. Taking the place of M&S and Direct Line – another company dropping down from the premier index – will be Jordanian drug-maker Hikma Pharmaceuticals and Polymetal, a Russian gold and silver producer. Neither have meaningful activities in the UK.
They will be joining in the Footsie the likes of Fresnillo, a Mexican silver miner; NMC, a Saudi Arabia-based healthcare provider and Evraz, a Russian steel-making company.
M&S’s departure from the Footsie only serves to emphasise that the latter long ago became a global stock index completely unrepresentative of the UK economy.
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