Marks & Spencer Warns of Trouble for Retailers as Next Buys

LONDON Marks & Spencer warned investors on Wednesday that 2023 will be challenging for retailers, with the cost-of-living crisis eroding demand and only the leanest operators able to survive.

As it revealed single-digit gains in first-half sales and profits, the British food and clothing giant said “the most marked rise in the cost of doing business for many years” was creating pressure on margins industrywide.

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“All parts of the retail sector will be affected, and this will result in unviable [businesses] leaving the industry, creating opportunities for the leaner players who remain,” the company said.

M&S released its first-half numbers, and made its 2023 predictions, just as fellow British retailer Next plc announced it had purchased the remains of, the once-fashionable online furniture retailer that entered administration this week with the loss of all 500 jobs.

Next, which sells clothing and homeware via physical stores and also operates a major online platform offering a variety of third-party brands, purchased the brand, website and intellectual property.

The publicly quoted witnessed a sales boom during lockdown, but was struck down by supply chain woes and delivery delays. The company completed its IPO on the London Stock Exchange in June 2021 with a market capitalization of 775 million pounds. It has since ceased trading.

By contrast, M&S’ fortunes are rising.

Even before COVID-19 swept through the U.K., M&S had begun tightening operations and closing, downsizing and optimizing stores. It honed its supply chain and improved its clothing offer with a platform approach that offers third-party brands in addition to M&S labels.

The moves have been paying off. In the fiscal first half ended Oct. 1, M&S touted an 8.8 percent uptick in sales to 5.56 billion pounds and an after-tax profit gain of 4.3 percent to 166.7 million pounds.

The company said the second half is off to a good start, with trading in the first four weeks in line with forecasts. Clothing and homeware sales are up 4.2 percent, followed by food at 3 percent.

The company said it is hoping the weather turns cold soon so that people buy more winter clothing, and is looking to the “added benefit of the unusually timed Football World Cup” to bolster sales in the current quarter.

Costs will continue to be elevated, but the retailer said it was not altering its guidance for the full year.

Shares were down 2.3 percent at 1.13 pounds in late morning trading on Wednesday.

In the first half, M&S said the Clothing and Home division delivered strong growth with total sales up 14 percent. Full-price sales were “broadly level” with last year’s levels and well above the historic average, the company said.

Store sales of Clothing and Home items were up 18.8 percent, with growth driven by stores in city centers and shopping centers “reflecting the return to more normal trading patterns, although high streets continued to lag.”

Online sales increased 4.9 percent and accounted for 32 percent of total Clothing and Home sales, with continued strong growth in traffic and increased average order values, partly offset by higher returns rates.

The company added that the M&S App now accounts for more than a third of online Clothing and Home sales.

The company said it’s putting an emphasis on style and value for money and is also investing in emerging growth categories such as childrenswear.

Womenswear sales rose 15 percent in the period with “strong growth” in formal and event-driven categories. Dress sales were up by more than 50 percent and holiday-related shopping also grew strongly.

Men’s formal shirts and clothing were also up by more than half, reflecting improved availability and customers’ focus on key occasions such as weddings, while casual sales also grew, M&S said.

Stuart Machin, chief executive officer, described first-half trading as “robust,” with the food and clothing divisions “growing ahead of the market, reflecting the beginnings of a reshaped M&S. Clothing has delivered a standout performance from a market-leading position in value with improving style credentials.”

He said the program to renew and rotate the M&S store estate has been “driving sales and quick paybacks.”

Machin added that underpinning the business is an improved balance sheet with reduced debt and a strong cash position.

“This progress means we face into the current market headwinds with an increased resilience and level of confidence. Looking beyond the current stormy weather, much is in our control and our mandate is clear — to step up the pace, accelerate change, drive a simpler, leaner business and invest in growth opportunities,” he said.

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