Rabu, 09 November 2022

M&S warns of 'gathering storm' as shoppers squeezed - BBC

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Marks and Spencer has warned of a "gathering storm" of higher costs for retailers and pressure on household budgets as it reported a fall in profits for the first half of the year.

The High Street giant said trading would become "more challenging" after it revealed its profits dropped by 24%.

It said "all parts" of retail would be affected by the UK's economic climate, adding unviable firms would go bust.

But M&S said its business could "prove more resilient" due to its clientele.

Many UK businesses are being hit by rising energy bills, wage costs and raw materials prices.

Consumers are also cutting back their spending, with the Bank of England warning the UK is facing its longest recession since records began.

M&S said the "combined impacts of the cost-of-living squeeze" and the increased cost of doing business was "creating pressure on margins industry-wide".

But the retailer said that while it was prepared for tough times, M&S was in a stronger position than others due to a high number of its 30 million customers being in "above average paid jobs or retired".

"Whilst we are therefore planning on a material contraction in market demand, the M&S customer may prove more resilient than some market commentators assume," the company said.

"A high proportion of these are in above average paid jobs or retired. Despite the recovery in demand since the pandemic and return to travel these age groups shielded more and many retain a savings cushion."

Energy bill hit

M&S said group revenue rose by 8.5% to £5.5bn in the six months to 1 October, with clothing and home sales doing well.

But its profits were hit by higher overheads while its online grocery partnership with Ocado Retail also came under pressure.

Customer and order numbers increased, but basket sizes continued to decline to pre-pandemic levels.

Wearing a jumper under his suit on a website presentation, Archie Norman, the chairman of M&S, said it was a "sign of the times" and the heating had been turned down in the office by 1.5 degrees.

The company has previously said its energy costs were up by £40m this year.

Marks and Spencer shop
Getty Images

M&S said its full-year profits would be hit by its exit from Russia and the end of business rates relief, which was given by the government during the pandemic.

"Across all M&S markets it is highly likely that conditions will become more challenging in 2024," the firm added.

"However, the far-reaching changes made over the past few years, together with a reinvigorated product offer and strong value for money credentials provide some insulation from the gathering storm."

M&S chief executive Stuart Machin told reporters that despite the challenges, its customers wanted to "protect Christmas" this year and would not cut back drastically.

Katie Bickerstaffe, co-chief executive, said customers had already bought about 30% of their Christmas gifts, a trend which has been seen at other retailers.

Velvet trousers, party wear and sequins were the most popular searched-for clothing items currently, she added.

It comes after George Weston, the boss of Associate British Foods, which owns Primark, said people were spreading their festive purchases this year "across three or four pay days, rather than relying on cash that they have in hand in December".

Store closures

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said while the rising cost of living was hitting households, M&S's results showed that "plenty of shoppers are still super-resilient and can be persuaded to part with their cash if the offer is right".

"M&S has done a valiant job of keeping the tills brisk and virtual baskets filled up with the right product mix, offering value ranges interwoven with treats," she said.

She also said the firm's turnaround plan - which involves closing larger underperforming department stores and concentrating on smaller outlets where food is prioritised - was working.

In October, Marks & Spencer announced it was speeding up a shake-up of its store estate, saying 67 of its bigger shops would shut within five years.

The closures are part of previously announced plans to axe 110 of its biggest stores .

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2022-11-09 11:03:47Z
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