From shirts to champagne (via countless knickers): How our favourite store made an even bigger profit

The nation's favourite retailer turns an old formula into new successes

Marks & Spencer confirmed its position as the Rolls-Royce of the British high street yesterday when it reported a strong increase in its profits together with a bullish statement on consumer confidence which hinted at the return of the elusive "feel-good factor".

Coming from Britain's largest retailer, the comments add weight to recent upbeat figures from the British Retail Consortium. These show sales increases in most areas apart from footwear and fashion.

Reporting profits of almost pounds 1bn for last year, M&S chairman, Sir Richard Greenbury, said that trading was good in both food and clothing and that a surge in home furnishings sales suggested a recovery in the housing market might be around the corner.

"There is every sign the consumer is coming out of the trenches. It's not a boom but it is looking a lot better. Does the consumer have just that little bit of extra money? The figures suggest they have," he said.

The typically steady performance also underlined M & S's pre-eminent position as the dominant force in UK retailing. While many other high street names have stumbled during the recession, "Marks and Sparks" has marched on relentlessly.

John Richards, retail analyst with stockbrokers NatWest Securities says the key M&S asset is the name above the door: "It is the strongest brand name in the UK. Everyone loves it and trusts it. That's why when you get a BSE scare, Marks & Spencer's sale go up. People think, "well I'm not going to catch BSE from M&S".

Richard Hyman, of retail consultants Verdict Research, said: "The secret of their success is in the execution. You can see the company's strengths as soon as you walk through the door." He says the key elements are an obsession with quality, terrific staff, a Draconian attitude towards costs and good, long term relationships with its suppliers.

To many, however, M&S remains an enigma. Even after the design boom of the 1980s which transformed store design, its stores remain plain and bare. It introduced changing rooms only recently. And the stores do not have customer lavatories.

There are still many items it does not sell, such as sporting goods. For a long while it did not even sell basic, commodity foods such as milk and sugar as it only wanted to offer goods it felt in could improve upon.

But while the fortunes of rival retailers ebb and flow, M&S remains a constant in a changing world. "It is trust and reliability," Mr Hyman says. "You know what you're buying."

In an age when downsizing is the fashion, it retains an old-fashioned regard for the quality of its staff which are cosseted with high wages, a non-contributory pension scheme, subsidised meals and regular visits from the company's dentist and chiropodists. The staff received a 4.5 per cent pay rise yesterday. At pounds 6 an hour they are the highest earners on the high street.

Marks & Spencer has also managed to avoid the problems that have afflicted so many business dynasties such as Forte, Gucci and even Sainsbury's.

Founded in 1894 in Leeds by Michael Marks, Marks & Spencer has always had a strong family presence. Even as recently as 1984 a direct descendent, Lord Sieff, was chairman. But the family has gradually taken a back seat in the running of the company as it has grown into a pounds 12bn giant with stores across the world.

There are still two family members on the board but not in key positions and they are not tipped for the top jobs. There are hardly any family members in lower positions that could one day take over. One analyst says: "It was never the kind of family that tried to keep all the power within a close knit group."

But such is the strength of the rather middle class M&S culture, that once people join, they rarely leave.

The chairman, Sir Richard Greenbury, has never worked anywhere else, joining in 1953 as a management trainee. Most of his fellow directors also worked their way up from the training schemes. Deputy chairman Keith Oates is a rarity in that he was brought in from outside, but that was 11 years ago.

The company has often been criticised for being conservative and slow to adapt to new trends such as electronic till systems. But when it makes a decision, it usually makes the right one and then acts rapidly.

M&S is now a leader in retail technology. It does not go in for the rapid expansion that has caused such problems for other retailers such as Ratners, Storehouse and Burton.

It has successfully diversified too. From simply clothing and foods, M&S now offers home furnishings and financial services such as pensions and life assurance. Again, it is not a leader but is carefully using the strength of its brands to sell other services.

Its overseas mistakes have been committed in North America. The Canadian business makes a loss due to high rents, and the takeover of the Brooks Brothers department stores in the US during the 1980s proved a costly disaster. Again under new management it is only now starting to produce a decent return. Chastened by its experience, M&S is unlikely to conduct another takeover in the foreseeable future.

Perhaps the greatest tribute to the M&S management is that it is rarely has to react to events. It leads rather than follows. As Mr Richards, of NatWest, says: "It is always in control."