What Top Gear Tells Us About Marks and Spencer Group Plc, Tesco PLC And Whitbread plc

The Jeremy Clarkson debacle has lessons for investors in consumer firms such as Tesco PLC (LON:TSCO), Marks and Spencer Group Plc (LON:MKS) and Whitbread plc (LON:WTB)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

To me, the sacking of Jeremy Clarkson from Top Gear speaks volumes about the BBC’s relationship with its customers. It became apparent that senior management had been spoiling for the opportunity to rid themselves of a hugely popular but politically incorrect personality. It’s a pity BBC Trust Chairman Rona Fairhead didn’t procure some friendly advice from her fellow HSBC board members. Owners of investment banks are experienced at managing over-paid, highly valuable employees with egos the size of Uranus.

Trash

To nonchalantly trash a programme format sold in over 170 countries that earns the BBC an estimated £67m a year, in the face of a petition bearing over one million signatures, is a luxury reserved for those whose income is funded by licence-payers who have no choice but to stump up.

BBC Creative Director Alan Yentob defended the sacking amidst claims that the BBC is run by a metropolitan elite by saying “there are quite a lot of programmes that reach out to audiences who are C2,D,Es…”. His contempt for the BBC’s working class audience was comparable with Gerald Ratner’s infamous rubbishing of his jewellery chain products, still remembered nearly 25 years on.

Consumer-facing commercial businesses can’t treat their customers with contempt, but rather need to be highly attuned to customer opinion. It’s especially important for companies that are high profile, and even more so when customer and shareholder groups overlap — analogous to the BBC’s situation. The varying fortunes of companies such as Tesco (LSE: TSCO), Marks and Spencer (LSE: MKS) and Whitbread (LSE: WTB) provide useful insights for investors.

Empire-building

Many observers would ascribe Tesco’s demise over the past three years to an arrogant and out-of-touch management regime that put empire-building above the customer. Tesco’s chairman admitted that “the company lost touch with the outside world”, and Morgan Stanley analysts pointed out that management was “obsessed about numbers”. True, the market changed with the rise of the discounters, but the market-leader could and should have responded quicker if it was in tune with customers. Only a change of management is now, perhaps, restoring the company’s potential.

Marks and Spencer has a mixed record. Long-known for superb customer service, its food division has thrived — despite the supermarket sector travails that so battered Tesco — by clever market positioning. The original ‘Dine in for Two’, which packaged a two-course meal plus wine for £10 in 2011, perfectly targeted the newly austere as they weaned themselves off dining out.

But around the same time in general merchandise — mainly fashion — M&S lost touch with its core 55-plus female customer base. Iconic M&S encapsulates the nexus of corporate and product branding: its 2012 AGM was beset by private shareholders demanding that the company stock more dresses with sleeves. This Thursday’s quarterly trading update will reveal whether the chain has finally reversed 14 consecutive quarters of sales decline in general merchandise.

Premium — and value

Whilst M&S shareholders have had a bumpy ride over the past three years and Tesco’s have grown poorer, investors in Whitbread have seen their stock rise by 80%. The shares’ premium rating — 25 times earnings — reflects earnings growth, which in turn mirrors its brands’ popularity with consumers. In contrast to M&S and Tesco, Whitbread’s corporate name is not linked with its high street brands, including Premier Inn, Costa coffee shops and Beefeater Grill. Indeed, the man in the street would more likely associate the company name with the brewing business that it shed in 2001.

Whitbread’s businesses are geared towards the value end of the price curve, though I doubt you’d catch a Whitbread executive doing a Ratner. The shares took off when Andy Harrison became CEO in 2010. He’s a man in tune with those who appreciate a bargain, having previously run budget airline easyJet.

Many sophisticated investors favour consumer businesses that have repeat sales of small value: there is greater earnings visibility than in businesses which have few, large contracts. But that approach only works if the management stay close to fickle consumer tastes. Ratners, and Tesco, demonstrate how quickly they can lose touch.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Tony Reading owns shares in HSBC and Tesco. The Motley Fool UK has recommended shares in HSBC and  owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »