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By Paul Sandle and Sarah Young
LONDON, Jan 18 (Reuters) - For generations, British childrenwent to school in Marks & Spencer's clothes, teenagersturned to it for first interview suits and shoppers of all agesbought its underwear.
But the arrival over the last 20 years of fast, cheapfashion at one end of the market and affordable luxury at theother has left M&S struggling to recapture its universal appeal.
After 14 consecutive quarterly declines in clothing,footwear and homeware sales, time could be running out for theman tasked with finding a solution - Dutchman Marc Bolland.
A rising share price, a strong dividend and signs ofimprovement in its clothes had largely kept investors onsideduring his five-year tenure, but a disastrous Christmas hasreignited the question of whether M&S needs a fresh direction.
A change of faces at the top of several of Britain's biggestretailers in recent months could also add to the momentum.
A top-30 investor said he was sticking with M&S for now.
"There have been clear signs of improvement in recent years,not least in merchandise, and the Christmas problems shouldprove to be a one off," he said on condition of anonymity.
M&S declined to comment for the story.
Investors broadly support Bolland's strategy. M&S has areputation for quality and innovation in food no longerreplicated in clothing, something Bolland has tried to address.
In 2012, he brought in Belinda Earl, previously at upmarketstore Jaeger, to resuscitate womenswear. Her recent collectionshave wowed the fashion press. This season, Vogue has singled outa seventies-style suede skirt and a pink trench coat.
Quality has also improved through the use of more naturalfibres and he moved to make M&S more competitive against rivalslike Zara, part of Spain's Inditex, where new ranges hit theshelves every week. He is overhauling the supply chain torespond quicker to fashion trends and improve margins.
Over Christmas womenswear was the best performing category,and the signs are good for the spring. "These pieces are moreedgy and more trend-led than anything we've seen from middleEngland's erstwhile favourite to date - and we're more than alittle impressed," said the Metro newspaper.
The website has been revamped, with customer reviews, linksto social media and content tailored for mobile devices althoughit has had teething problems.
The strategy has yet to deliver higher sales, althoughmargins are improving, giving investors hope for higher payoutsafter hints it could increase the dividend in May.
"There is an element of investors being paid to wait in asmuch as the dividend yield is 3.8 percent, which is fairlypunchy," said Hargreaves Lansdown Stockbroker's head of equitiesRichard Hunter, of a yield that compares to a sector return of3.4 percent on a forward year basis.
DRESSING THE NATION
Founded in 1884 on a market stall in northern England, M&Sflourished in the second half of the twentieth century.
In the 1960s came innovations such as ladder-resistantstockings, while machine washable wool jumpers took off in the1970s and chilled ready meals were all the rage in the 1980s.
When asked where she bought her underwear, MargaretThatcher, prime minister from 1979 to 1990, replied, "Why, Marks& Spencer of course. Doesn't everyone?"
In 1997 it became the first British retailer to post profitsof 1 billion pounds but a couple of years later sales andprofits fell and its market cap halved. Subsequent turnaroundshave proved short lived.
ROOM FOR IMPROVEMENT
But in a sign of the challenge faced by M&S, attempts by thefashion team to win over shoppers at one end of the spectrum cansometimes alienate others.
"Shapeless, unattractive 'dresses' that I don't think myGranny would have worn when she was alive," Shirley Em, aged 66,said on M&S's Facebook page this month.
Progress made online was undone by problems in fulfillingorders from a distribution centre, opened with fanfare in 2013.
Online, which accounts for around 15 percent of non-foodrevenue against the more than 37 percent of online andcatalogues sales Next makes, were down 5.9 percent in the 13weeks to Dec. 27.
"It was not working over a period when online is critical,"Neil Saunders at retail researcher Conlumino said.
Shares in M&S, which hit a high of 759 pence in 2007 beforefalling sharply, have risen 26 percent under Bolland's tenure,outperforming a 17 percent rise in the FTSE 100 index.Next, however, is up more than 200 percent in the same period.
Internally, ditching Bolland is not a subject ofconversation, say insiders.
But shareholder patience won't last forever. An update onApril 2 could prove decisive.
"The chairman and senior independent director at M&S areprobably asking themselves whether his scorecard is acceptableand they should be asking M&S shareholders the same question,"David Cumming, head of equities at shareholder Standard Life,said last week. (Additional reporting by Simon Jessop, James Davey and EmmaThomasson; editing by Anna Willard)
