The City Editor

By THIS IS MONEY
Updated:

 

The crunch is fast approaching at Marks & Spencer, the High Street retailing giant that is getting smaller by the week. It is due to publish its figures next month and the whisper is that on the first cut the numbers are truly dreadful. Indeed, they are said to be so bad that two things are likely to disappear. One is the final dividend. The other is chief executive Peter Salsbury.

Obviously at this stage much of what one hears cannot be substantiated for the record, but sources at M&S HQ in Baker Street say that trading has been so awful these past six months that profits are not even sufficient to cover the dividend. Because there is no sign of any improvement, because new brooms like to get all the bad news out of the way early and because it concentrates the mind, M&S's new chairman Luc Vandevelde wants the board to give serious consideration to slashing the dividend or not paying one at all.

Never in recent memory has M&S been reduced to such a desperate pass and the board knows that if it takes such a course investors in the City will demand blood. They are therefore gearing themselves to offer up one of their number as a sacrifice - that one being none other than Salsbury, the chief executive appointed to follow the long-serving Sir Richard Greenbury.

Why have things gone so wrong? Partly Salsbury has failed to make an impact, but it was probably unfair, unless he was very lucky, to have expected him to. It is the corny old analogy of turning a supertanker, but the truth is that it does take a desperately long time to restore a business to health when the problem lies in the overall trading. There are no bits that can quickly be sold, no massive lossmakers to close and no alternative other then to re-invent the business from the bottom up.

Meanwhile, M&S appears to have been caught in the middle ground while its market is polarising. According to some retail analysts, the market for clothes has divided with the less affluent going to the discount stores where they can buy a dress for £10 and the more affluent going for branded goods which have cachet.

They, and particularly the young, go to Next, Gap, Selfridges or the designer labels, leaving St Michael stranded. The food business, too, is facing an unaccustomed struggle. Its upmarket position is assailed by a slowly rejuvenating Sainsbury's.

If Salsbury is ousted in the next few weeks he deserves a measure of sympathy. He was handed a massive job while not being given the time by outside investors to do it properly and not having the clout internally to move with sufficient speed, and ruthlessness to convince sceptics inside and out that he truly had a vision for the business. Maybe he is just too nice a guy for modern business life.

And finally...The problems of the Tote are amusing competitors in the betting world. The Government wants to privatise the State-owned horse racing betting service but a new twist to discussions between the Treasury and the Tote is that the latter has become convinced of the need to operate offshore, as some of the private sector bookies do.

Its efforts to convince the Treasury that the business is only viable if it is structured to avoid UK tax have thus far been unsuccessful, but one has to admire the directors for having the chutzpah to try it on. With that attitude, if they ever do break free from Whitehall, they should do rather well.

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