Given the Boot: M&S drops out of the FTSE 100

September 30, 2019

3 min read

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What's going on here?

In early September the retailer Marks & Spencer (M&S)’s share price fell below the required threshold to remain a part of the FTSE 100 for the first time since the inception of the index in 1984.

What does this mean?

The FTSE 100 is an index of the 100 largest UK listed firms (known as “blue chip” businesses) and marks out a group of companies that commonly attract global investment. Potential investors often feel more comfortable with FTSE 100 firms and this makes it easier for the famous “blue chips” to raise capital. Owing to London’s status as one of the world’s most important financial centres, the title of being a FTSE 100 company is especially lucrative.

Yet no place is guaranteed. British Airways, Next and Rolls-Royce have dabbled with relegation since 1984. Nevertheless, the rules ensure that there is not a constant fluctuation of promotions and demotions

If a company  outside the FTSE 100 has a market capitalisation of equal or higher to that of the company ranked 90th, then they will be promoted from the FTSE 250 index. If a company in the FTSE 100 has a market capitalisation of equal to or less than the 111th ranked company, they will be demoted. These reshuffles occur four times a year.

Marks & Spencer’s demotion means they now face the challenge of regaining the prestige of a FTSE 100 listed company. M&S’s share price had sunk from its record high £7.16 per share in 2007 to below £1.81 per share, with a notable 40% decrease since the start of 2019. Following this, there has been speculation about the company’s strategy, their joint-venture with Ocado, lethargic profit recovery and the 5-year recovery plan orchestrated by chief executive Steve Rowe and Chairman Archie Norman.

What's the big picture effect?

Many have blamed the historic demotion of the food and fashion giant on the failings to produce an effective turnaround, especially considering the poor clothing sales in 2016. M&S has faced threats to its high street dominance from online clothing retailers such as ASOS and Next. Meanwhile Primark has grown its high-street presence, eating into M&S’s increasingly costly high-street operations. Many call for a second “Per Una” moment (an M&S clothing launch in 2001 by the famous designer George Davies), but now success lies in effective online services and a brand image of  “quality at an unbeatable price”. 

The duo tasked with turning the 135-year-old retailer’s fortunes around are Steve Rowe and Archie Norman. Rowe plans to close 100 underperforming stores by 2022. In July, Rowe fired M&S’s fashion boss Jill McDonald in order to personally oversee the division. Norman has also made some radical changes to the food side of the retailer. Norman, known for turning around the supermarket chain Asda and the broadcaster ITV, masterminded M&S’s £750 million joint-venture with Ocado. Yet two years into Rowe and Norman’s five-year recovery plan, and it is not clear that M&S has been recovering much up till now.

When looking at the companies that have remained in the FTSE 100, and those that have been demoted there is a clear trend: change or destruction. It is also common to see high risk mergers and acquisitions in these scenarios. It remains to be seen if M&S can reinvent itself effectively and regain its place in the FTSE 100.

Report written by Will Holmes

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