LONDON (Reuters) - Online grocer Ocado has won the endorsement of Stuart Rose, one of Britain’s best-known retail bosses, who will become its chairman for what some analysts see as a make-or-break expansion by the loss-making business.
Rose, 63, is a former head of venerable British retailer Marks & Spencer (M&S), who was credited with defending that group from a takeover bid in 2004 by tycoon Philip Green, but who also courted controversy by becoming both chairman and chief executive, in contravention of corporate best practice.
He was also criticised by some analysts for lagging rivals like Next in adapting M&S to the internet age.
Ocado, which largely sells the products of upmarket grocer Waitrose, has also polarised opinion.
Fans point to rapid growth in online grocery sales, its state-of-the-art distribution centre and high customer service ratings.
Sceptics, however, note it has not made a profit since it was founded by three Goldman Sachs bankers in 2000, and doubt its model of filling orders from central depots will ever be as profitable as online operations at grocers like Tesco and J Sainsbury, which mostly pick orders in stores.
“Bad companies will always beat good management,” said Shore Capital analyst Clive Black, a long-standing critic of Ocado and fan of Rose.
At 1045 GMT, Ocado’s shares were up 6 percent at 100.8 pence, valuing the firm at 583 million pounds.
But the stock is well below its 2010 flotation price of 180 pence and the firm is due to open a second distribution centre in the coming months, at a time when its sales growth is lagging that of some of its larger competitors.
“The next six months are crucial,” said Panmure Gordon analyst Philip Dorgan.
Rose, who has worked in the retail sector for 41 years, will become an independent non-executive director and chairman designate on March 11 before succeeding broadcasting executive Michael Grade, chairman for six years, after Ocado’s annual shareholder meeting on May 10.
“As retail goes through a fundamental shift in the digital world, I believe Ocado’s model and the high standards of customer service it provides will see it emerge as a powerful online player,” said Rose, who holds 750,000 Ocado shares.
Numis analyst Andrew Wade said the endorsement of Ocado’s business model by a man of Rose’s retail stature was reassuring for investors.
Others, however, questioned Rose’s track record in online shopping during his time at M&S from 2004 to 2011.
“There will be some at M&S who think he should have done more to modernise M&S’s antiquated online operating systems in his time there,” said independent retail analyst Nick Bubb.
Though M&S is investing heavily in its online business, its new web platform is not scheduled to launch until spring 2014.
Ocado is regularly touted as a bid target for M&S, as well as grocer Wm Morrison, as neither company has a significant online grocery business.
Panmure’s Dorgan said Rose’s appointment was likely to stoke such rumours, though he was sceptical of any bids emerging.
“Ocado is gobbling up cash and is underperforming its multichannel competitors. We don’t see this changing,” he said.
Editing by Kate Holton and Mark Potter