M&S profit to take a hit
After poor quarterly performances from Marks & Spencer’s general merchandise division, the full year results come as no surprise, with UK full-year like-for-like sales falling 1.1 per cent.
That followed a drop of 1 per cent the previous year.
Today sees the new CEO take to the stand to reveal his strategy to return M&S profit to growth and regain its position in the market, a tall challenge given the retailer’s share of the UK clothing market has been eroded year on year, falling from 10.5 per cent to 8.7 per cent between 2010 and 2015.
The announcement that incoming CEO Steve Rowe is willing to take a short term hit on profitability in an effort to restore turnover growth is an essential action, which his predecessor was unprepared to implement. Investment in price, product quality, availability and customer service is a message we have heard before from M&S, but the sacrifice of profitability signals a stronger commitment this time round.
As well as focus on price positioning and style authority to improve its clothing business, both of which are essential in driving footfall back into stores and online, M&S has put a large emphasis on the importance of customer experience. It hopes to slim down its clothing offer further and reduce duplication across ranges to remove shopper confusion.
Again, this was addressed a few years ago but under Rowe’s new management structure and shift in its buying strategy (buying by product category, not by sub brand), issues of repetitiveness across collections should be prevented – though communication between product buying teams is vital to ensure final ranges are coherent and the sub brands target their core customer segments.
Despite facing a tough economic climate and a potential weakening in consumer confidence in 2016, expect to see initial sales improvements filter through in M&S’ half year results in November.
- Honor Westnedge is lead analyst at Verdict Retail.