Discounting and cost cutting by Marks & Spencer threatens its long-term health and dramatic change is necessary to restore the retailer’s fortunes, a broker has warned.

In a strongly worded sell note, broker Investec set out its own five-point plan for business recovery.

Investec analysts Katharine Wynne and David Jeary said Marks & Spencer must address leadership succession, shift its trading strategy, put overseas expansion on the back-burner, rationalise its store portfolio and change its balance sheet priorities.

Investec said: “The traditional M&S response to tough trading can be summarised as: ‘Beat up suppliers; tart up stores; er… that’s it.’”

The broker tht maintained M&S’s board – of which Sir Stuart Rose is executive chairman – is unbalanced and said: “The succession issue remains unaddressed. The operational management team has not delivered an impressive performance over the past 18 months and whilst changes have been made within the food division, we do not see the next chief executive as within the ranks, and indeed question whether the operational team needs to be strengthened in general merchandise.”

Investec feared M&S’s increased discounting means it is “teaching customers to shop on promotion” and said: “It may well be driving store traffic – attracting a less loyal customer – but risks alienating the traditional customer and reducing the frequency of visits, historically a big strength for the company.”

The broker argued M&S should not develop separate store formats and said: “Its primary focus should be to right-size group footage by location and catchment. For example, management needs to make proactive moves to address the company’s under-representation out of town.”

M&S posts full-year results on Tuesday May 19. Investec expects profits to fall to £620m.

Marks & Spencer declined to comment.

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