Marks & Spencer To Drop Out Of FTSE 100 For The First Time In Its History

M&S has been a permanent fixture of the FTSE 100 index, formed of the London Stock Exchange’s 100 largest companies by market capitalisation, since its formation 35 years ago. But not anymore. A 1.5% drop in the M&S share price on Tuesday took Marks & Spencer below the threshold for inclusion in the index – as of yesterday the company was only the 115^th largest by market capitalisation on the LSE. And on Wednesday night it was officially announced the M&S will be relegated to the FTSE 250 as of September 23^rd.

M&S chairman Archie Norman sought to play down the drop down to the FTSE 250 with the affirmation that the company had its sights firmly fixed on a medium term 5-year plan targeting a return to growth:

“Our eyes are on the goal, not the scoreboard. I have said from the outset we are here to regenerate a profitable growing business for five years’ time.”

But while longer term turnaround strategy is certainly more important to Marks & Spencer than the FTSE 100’s quarterly reshuffle, dropping out of the index does practically put the company at a disadvantage when it comes to growing market value again. Many investors, especially large institutional investors, invest in the FTSE 100 as an index. Far more so than those investing in the FTSE 250 below it. So simply being part of the blue chip index is enough to generate significant investor demand for shares – making it far easier to retain a place in the FTSE 100 than it is to break in from the FTSE 250.

One of the UK’s best known high street brands, M&S traces back to 1884 – the year the 1035-shop chain started out as a Leeds market stall. While it is also now famous for selling groceries and ready meals, M&S was built on its clothing business. Clothing still accounts for the majority of the company’s profits. And its steady decline over the years, despite a number of attempts to reinvigorate the popularity of M&S clothing lines by making them more contemporary and fashionable, is what has ultimately cost the company.

Current chief executive Steve Rowe is the latest to be tasked with sparking a comeback for Marks and Spencer’s clothing unit. But it’s an unenviable chalice to drink from, having done for a number of his predecessors – most recently Jill McDonald who Mr Rowe hired for the role but survived for less than two years after presiding over mistakes in the company’s new denim range. Failure to order enough stock of a new line of jeans advertised by popular television personality Holly Willoughby led to empty rails and a significant lost revenue opportunity.

The ‘jeansgate’ debacle ultimately culminated in the decision to relieve Ms McDonald of her role, which Mr Rowe has stepped back into alongside his other responsibilities as chief executive across the wider company. Compounding the gaff of hiring Ms McDonald from cycling retailer Halfords for her “record in running global operations” despite having no background in fashion, it is believed that M&S compensated her for missing out on a £1.7 million bonus when she was dismissed. Her basic salary has never been published, her lack of a seat on the board meaning it didn’t have to be, but it is presumed to have been a significant improvement on the £741,412 she earned in her previous role.

The pressure is now on Mr Rowe to turn the struggling clothing business around enough to propel M&S back into the FTSE 100. Micro Focus and Direct Line will also both lose their spots in the FTSE 100. The three will be replaced by miner Polymetal, pharmaceuticals group Hikma and Meggitt, the engineering company.