M&S boss’ recession warning

Nov 29 2008 by Aled Blake, Western Mail

MARKS & SPENCER boss Sir Stuart Rose yesterday warned Welsh business leaders that the recession could go on well into 2011.

Sir Stuart, executive chairman of the UK’s flagship high-street brand, was addressing an audience of the Institute of Directors at Cardiff’s St David’s Hotel & Spa.

The warning, from arguably the most respected voice in British retailing, came after a torrid week on the high street – with Woolworths and MFI going into administration.

Sir Stuart said that M&S’ position as a barometer of consumer confidence, meant the company could see an economic downturn was on its way as early as autumn last year.

And he argued that business should continue to invest during a recession, so it could be ready for when the economic storm had passed.

Sir Stuart told executives: “The bad news is that we are on the brink of a full-blown recession. M&S has almost a perfect demographic, more than Asda or Tesco.

“Our customers come from every social class, from people on social security to billionaires, we are the broadest church in the land – you can be young, old, rich, poor, Christian, Jew, Muslim, white, black, Asian.

“We are very much a barometer of what’s going on and economic smoke detector. Our alarm first went off this time last year.

“We have three categories of customers.

“The first are those who might have families, mortgages, cars, and so on. Those customers were telling us their rate of inflation was not the official rate, it was more like 10% or 11%.

“The second category of customer are those who are more affluent – their children might have left home but they remember the last recession and they are cutting back because they remember how bad it was last time.

“The third category is the youngsters, who don’t have a clue what’s going on, they don’t understand what recession means and they will be the ones who hit the windscreen like a fly next year.”

Sir Stuart added: “My personal view is that this will be 2009-10, and possibly into 2011 it’s going to be tough. As the largest market shareholder in the country, it’s inconceivable that we will not be affected. Our aim must be to maintain the market share as the economy declines.”

Sir Stuart explained how the investment made by the company since he rejoined it as chief executive and then executive chairman had put it in a position to cope with a downturn.

He said a lack of investment in previous years had been the reason for the company’s decline.

“What we have to do now is to cut our cloth accordingly,” said Sir Stuart.

“Last year we invested £1.2bn, this year we will invest £900m, next year we will invest £400m.

“That doesn’t mean we are going to stop spending, but it does mean we are going to have to make sure we preserve the integrity of our balance sheet.

“It’s not just weak companies or small companies that face a liquidity crisis.”

Sir Stuart said that big firms would need refinancing next year and unless there is a solution to the liquidity crisis, then more big name brands could be casualties of the recession.

He said: “We have to react to what our customers are doing. They want value but they also know that they are skint and they want us retailers to respond to their needs.

“We are going to offer customers quality, value, innovation, service and hope. They trust us to do so.”

A correction was needed in the economy, Sir Stuart said.

He added: “We are going to see a polarisation between the winners and the losers. Good brands and businesses that are well managed will survive; if they are not they will not.

In a rather perverse way it’s the inevitable shock that we need in a capitalist economy.”

The M&S Plan A – to become carbon neutral by 2012 as well as a raft of other environmental pledges – would continue, said Sir Stuart. He said the plan had already become cost neutral and could well become cost beneficial to the business as staff look at ways to work more efficiently.

Sir Stuart said that the climate change was not going to go away just because of a recession and that the challenging targets set by the Government to cut carbon emissions would still have to be met.