Good old Marks & Spencer (LSE: MKS) (NASDAQOTH: MAKSY.US), stalwart of Britain’s high streets, how could I possibly not think it’s a great investment? Well, I’m sure many will disagree with me, but I think it’s one for novices to avoid. Here’s why:
Something I look for, which I think is especially important when you’re just starting out and want to minimise risk, is clear and focused management. And I just don’t think M&S has that.
It’s been shuffling along in the doldrums for years, running essentially two separate businesses — clothes and food. I pop in and buy food when I’m near, but I go in the side door directly into the food hall and just don’t see what else the store has to sell — I’ve only rarely ventured upstairs in my local branch. It’s good food, sure, but it’s not going to compete with Tesco or the others for mainstream groceries shopping.
No flair for fashion
What about clothes and the rest? Well, M&S has been trying to get its fashion mix right for years, and while the company has been in a “transformation” phase for the past couple of years, full-year results to 30 March still showed General Mechandise sales down 2.4% overall and down 4.1% on a like-for-like basis.
Compare that to a company like Next, which I reckon is probably the best in the business. Next just gets it right, year after year, without fuss or bother — Next just seems to know what’s going to sell.
And you know what? While M&S has seen profits going pretty much nowhere in the past five years after a 36% earnings per share (EPS) drop in 2009, Next has delivered four years of double-digit EPS growth with another forecast for this year — and even the crash of 2009 only brought an 8% fall in EPS.
I should perhaps confess at this point that I’m actually not much of a fashion-follower — my jeans cost me £8 at TJ Hughes, and though I do actually own a Next dressing gown, I got it for £2 from a charity shop. But I do pop in the stores from time to time, and M&S always leaves me feeling cold — to me, it still has a feel of Grace Brothers, and I still can’t really get my head round who its wares are aimed at.
If I venture into Next, it seems fresh and modern by comparison, and I’ve actually been known to stop and look at stuff rather than just heading straight for what I want.
Outside the UK?
International sales at M&S are actually doing quite well, and it’s a well-regarded brand in some parts of the world. But that accounts for only around 10% of the company’s turnover — at heart, it’s still a British chain, and the British don’t seem to love it that much.
How about online sales? Well, at Q1 time this year, sales via the M&S web site were up 30% over the same period a year previously. And that is undoubtedly a good thing, even it is from a low base. Next Directory, meanwhile, has been a strong online performer for years. And if we want to see who’s really pioneering online fashion, we need look no further than ASOS.
To sum up, there’s nothing especially bad about M&S. But for me, there’s nothing particularly good about it either — it’s just not the best at anything it does, and hasn’t been for quite a few years now. Novices should primarily be looking for best-in-business.
