On your Marks

Marks & Spencer (M&S) has taken its fair share of criticism over the past few years. City analysts have criticised its structural and management shortcomings. Even its executive chairman, Sir Stuart Rose, has said that, if the company's combination of mass-market clothing and high-end groceries didn't exist, then it wouldn't be invented today.

That's an interesting observation from the man who has struggled to get the bastion of the UK's high street back on track. True, Sir Stuart presided over a short-lived revival that saw the defence of a bid approach from Sir Philip Green, profits return to £1bn, a magical figure not achieved since the late 1990s, and the share price double between 2005 and May 2007. But he has a fractious relationship with shareholders, who have reason to be irritated. Sir Stuart, who will step down from his executive role with the share price back to where it was when he was parachuted in to mount the bid defence, has an autocratic style and has flouted corporate governance guidelines by stepping directly from chief executive to executive chairman. Worse, the company's dividend was cut by a third last year, the first cut in its 80-year history as a listed company.

Of course, no retailer escaped unscathed from the credit crunch. And Sir Stuart has pushed through initiatives which have helped M&S cling to its ground in a fast-moving retail marketplace. Its shops, for one thing, are no longer the dowdy and dated outlets that weakened the group enough for Sir Philip to stand a realistic chance of bagging M&S on the cheap. That said, higher capital spending, combined with bumper dividend payouts and share buybacks, has left the business saddled with £2.6bn of debt.

Sir Stuart has at least implemented a turnaround plan, Project 2020, to address the shortcomings. Even though City analysts reacted badly to the proposals when they were outlined in October, they look sensible and seem to be working. Actions such as warehouse consolidation and better logistics contracts will save £30m by May, and analysts at investment bank Goldman Sachs think the plan could add £1bn to operating profits by 2014. Like-for-like sales are on an upward trajectory, too, albeit against weak comparable figures last year.

It's still early days, though, and some of M&S's recent strength in trading has been due to a recovery in consumer spending. Besides, some analysts think the plan does not address the group's fundamental weaknesses, or that a turnaround is even possible given the group's current, incongruous form.

The scale of these challenges won't be lost on incoming chief executive Marc Bolland, who turned round supermarkets operator Wm Morrison into the fastest-growing food retailer in the UK after its troubled takeover of Safeway in 2004. During his time at Morrison, its share price rose by a half, thanks to a single-minded focus on putting together what analysts describe as "the best food offer in the industry". Mr Bolland will no doubt understand that M&S needs to regain its image as the epitome of affordable quality among UK retailers.

And it can't hurt that M&S remains the UK's largest clothing retailer, and is starting to gain market share again. True, Mr Bolland has no experience of clothes retailing, but he can draw on the experience of Kate Bostock, who has revitalised M&S's clothing ranges, particularly in areas where it was previously uncompetitive, such as childrenswear.

Of course, Mr Bolland faces other challenges, in particular the growth of M&S's internet channel and the extension of the brand into new services. Both are being under-exploited, and Goldman Sachs calculates that web sales could add an additional £268m to operating profit within five years. But food, the group's current problem area, is where Mr Bolland has real expertise, and he will no doubt be relishing the challenge of going head to head with the current premium leader, Waitrose, when he joins in May.