Neil Collins’ Notebook – M&S finds a fan (of sorts)

Once upon a time, I wrote that Marks & Spencer could turn into the Woolworths of the 2010s (which shows how long ago it was) as M&S embarked on another interminable attempt to turn back the clock and resume its place at the top table of UK retailing. M&S is still with us, albeit with a share price which, on Morningstar’s figures, was first seen 33 years ago, and a market value of just £2.8bn, on sales last year of £10.2bn.

Asos, by contrast, is currently worth £4.8bn on historic sales of £3.3bn and Boohoo £4.3bn on £1.2bn. The difference between the old guard and the upstarts could hardly be greater, and if anything the raw numbers understate the decline at M&S, which is disguised by the growth of food. Still, hope springs eternal, and here is the immensely experienced Clive Black of Shore Capital: “Amidst considerable disruption, strategic change has been materially accelerated, resulting in a cleaner trading pattern and a leaner business for a post-Covid world.”

He is even prepared to forecast a tiny pre-tax profit for the current year to March. Nothing beyond, understandably given how difficult things are. Shore are brokers to the company, and their internal rules bar a recommendation for house stocks, which is a stroke of luck, really.

But at least M&S is still with us and still solvent. Some of that is down to the efforts of the various managements, but it is mostly because it avoided being bought by private equity or by Philip Green, both fates which would have saddled the business with unsustainable debt. The Daily Telegraph reveals that Green’s empire owed £750m when it collapsed. The cynical asset-stripping by CVC, TPG and Merrill Lynch’s buyout wing set Debenhams on the road to ruin.

The motives of the private equity bandits and Philip Green, whose wife was the recipient of a £1.2bn dividend, are plain enough. The motives behind the bank advances which allowed the payments are less so. The lenders will take thumping write-offs – or rather, the shareholders in the banks will – but it is highly unlikely that the anonymous officers who approved this massive replacement of equity by debt will suffer any consequences. Never mind their squandering of the banks’ funds, or the misery caused when thousands of employees lose their jobs.

The failure of Debenhams and Arcadia was almost guaranteed by their debt burdens; the Covid crisis merely accelerated their demise. Neither group had the capital to invest in on-line when it became clear that there was more to it than setting up a website and hoping. No amount of clever buying or inspired design could compensate for the inexorable rise in debt costs.

Only two significant non-food retail groups look sure to survive the tsunami that is sweeping through the high street. Primark has a clear focus on value, a belief in the power of physical shopping, and a well-capitalised owner prepared to take the long view.

Under Simon Wolfson, Next has shown traditional clothes retailers how it can be done. He avoided the straitjacket of long leases, invested heavily in the on-line Directory, managed the balance sheet and produced extraordinarily detailed financial statements. He is not afraid to deliver bad news when he sees it coming.

It may not quite be too late for M&S to join the two survivors, but it promises to be a close-run thing.

What about the taxpayer?

If only Daniel Hooper, aka Swampy of blessed memory from the Newbury by-pass, had pointed to the waste of taxpayers’ billions building HS2. Then his latest protest, tunnelling under Euston station in London, might have gained more sympathy. Sadly, he and his diggers are hung up on the usual “climate emergency” meme, that we are all doomed unless we stay at home indefinitely eating lentils.

It’s worth pointing out yet again what an impressive waste of money is HS2. Instead of knocking a few minutes off the train times to Birmingham and Manchester, even today, the government could scrap it, give £5bn to each of the 20 largest northern cities and towns, and still save money. Nobody seriously believes it will be built for the £110bn latest estimate, and no credible numbers for fares and usage had ever been published, even before Covid changed the world.

Sadly, Swampy’s protest will play into the hands of the developers, who will argue that his protest has raised the cost of construction still further. Thus does this wealth-destroying project grind on, cutting its swathe of destruction across the English countryside and through the public finances.

Turn out that light!

Swampy and his pals will have been cheered by the news this week that the UK generated more electricity from so-called “green” sources last year than from fossil fuels, for the first time. He might have been less happy at the cost, and who was paying it. Fuel poverty is now widespread, according to Action for Children and End Fuel Poverty. The subsidies paid to renewables plus the costs of keeping fossil fuel plants on stand-by and to the grid of balancing supply are hidden in consumers’ bills. Businesses will pass their own higher costs on in raised prices to consumers.

Still, not to worry. According to the Beloved Leader, the UK is going to become “the Saudi Arabia of wind” as we cover the North Sea in bird-eating turbines, and the militants at the Climate Change Committee press for an end to fossil fuel generation by 2035. That all sounds like a recipe for a long, cold winter, and as usual, the poor will pay.