Has Marks lost its spark?

12:01pm Wednesday 9th July 2008

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With profits falling and shares on a rollercoaster ride after rumours of a possible takeover bid, Marks & Spencer's AGM today is expected to be a lively affair. Owen Amos finds out what's going on.

ITS SALES sink, its shares boomerang and its profits take a pasting.

Analysts fear the worst and middle-class mums head, guiltily, to Aldi. This is not just a slump. This is a Marks & Spencer slump.

Why? Walk through Marks & Spencer and see.

Yes, it's bright, light and clean. Yes, aisles packed with Scottish salmon and West Country oatcakes sparkle under white spotlights. And yes, they pipe in Coldplay and Maroon 5. But it's expensive. When four Granny Smiths are £1.69 and the credit crunch bites, all the pop-rock in the world won't save you.

Eight Granny Smiths in Netto, for example - firm, juicy Granny Smiths, too - are 99p. And it's not just Netto. At Asda, the cheapest loaf is 37p; at Marks it's 89p. At Primark, a women's vest is £1.50; at Marks it's £4. Yes, there are offers, but when filling your car with petrol costs more than return flights to Rome, are we lured by two melon medleys for £5?

And not only are costs rising, thrift has never been so fashionable. You can't turn on the telly without Martin Lewis, or some other moneysaving expert, making you feel guilty for opening the car window, or chucking out mouldy mushrooms. These days, buying pre-cut pineapple chunks isn't a time-saving treat, it's a sin.

So, in the past quarter, Marks's food sales sank by 4.5 per cent. Meanwhile, in May, Aldi - who don't have melon medleys, but do have cheap chips - reported an 18.9 per cent sales increase, to £577m. Credit crunches don't leave teeth marks on all. Welcome to the Aldi Era.

But just last May, it was decidedly different.

Marks & Spencer announced profits of £1bn - that's £2.7m, and lots of Scottish salmon, a day - for the first time since 1998. The green signs, and white spotlights, glowed bright. The credit crunch was a rumour, an insider's tip. Today, it's a self-fulfilled prophecy.

When Marks is well, the high street is well because it means people are spending. Agence Francaise de Presse, the international news agency, called Marks the "barometer of consumer sentiment in Britain" when reporting recent woes. But that's not why we care. Would a profit warning for Tesco - say - spark sympathetic profiles in national newspapers? Doubtful.

Because, as The Sunday Telegraph wrote, Marks is a "holy relic of essential Britishness".

Yet its founder was, of all things, a Russianborn Jewish refugee from Poland. Michael Marks, 19, opened his first stall in Kirkgate Market, Leeds, in 1884. Unable to speak English and barter, he sold everything for a penny - a model still used, 99p dearer, by half the North-East's shops - and thrived. Six years later, Tom Spencer, a cashier, paid him £300 for half the business and the empire spread across the North. In 1901, a warehouse was built in Manchester and, in 1904, the first shop - not stall - opened in Cross Arcade, Leeds.

Its products were British-made, from suppliers on long-term contracts. And, more importantly, they were top quality. Marks was as reassuring, and revered, as Sunday lunch. It even popped up abroad, from Hong Kong to Paris. It was a British beacon, a reminder that, still, the old country stood for something.

"There's a lot about M&S that is compelling,"

says Terry Tyrell, chairman of Brand Union, a brand consultancy. "It has a special place in people's hearts. We care about it more than almost any other business you can think of."

But, after 1998, that love waned, tarnished by trends. If the late 90s stood for New Labour and Cool Britannia, Marks & Sparks stood for Conservative and cardigans. Profit fell from £1.16bn in 1998, to £145m in 2001 - an 87 per cent fall.

Boardroom figures came and went. The last 38 Canadian stores closed in 1999, the Paris stores went in 2001.

The revival, therefore, capped last May, was remarkable. In 2001, with Next founder George Davies, it launched Per Una, a range of modern women's clothing. For the first time in some time, twenty-somethings went to Marks for themselves, rather than mum's birthday. In 2002, it signed David Beckham to launch a children's clothes range and, in 2004, made a bigger signing: Stuart Rose, as chief executive.

Rose refurbished stores and, crucially, launched those adverts. Profits, like an M&S escalator, rose impeccably: £505m in 2005, £745m in 2006, £936m in 2007, £1bn in 2008. He was rewarded, in the 2008 New Year's Honours, with a knighthood. He had, after all, revived a British institution. It was on par with pulling the Queen's corgis from a burning building.

Yet even Sir Stuart's in trouble. Today, around 30 per cent of shareholders are expected to vote against his decision to become chairman and chief executive from next year. And although the company's share price rose seven per cent yesterday after rumours of possible takeover candidates including Sainsbury's, the White Knight now seems a touch grubbier.

So where next for M&S? Slash prices, and square up to Tesco? Sit tight, keep selling that melon and pray for a cut in petrol prices? Cut costs and cancel the planned opening of 200 more Simply Food stores? Our keep expanding, ride the storm and hope for sunnier days?

Great British brands, after all, are not invincible.

Rover was sold to the Chinese, and Woolworth's wobbles on, just, like a high street relic.

Perhaps, though, this week's wailing proves one thing only: the country cares for M&S. After all, an £800m profit - approximately - is a nice problem to have.