Marks & Spencer Shoppers Pay Full Price as Market Shrinks
(Bloomberg) -- Marks & Spencer Group Plc is trying to sell more clothing at full price to wring profits from a shrinking U.K. apparel market that shows few signs of a turnaround.
The retailer said Wednesday that full-price clothing sales rose 8 percent in the first three months of 2017, about triple the pace for the full fiscal year ended April 1. The company held three fewer clearances and plans to space out promotions even more this year.
“The U.K. clothing market declined by 1.8 percent last year,” Chief Executive Officer Steve Rowe said on a call with reporters. “There’s not very much that’s going to change that, frankly. We’re not complacent about this at all.”
Rowe is stemming market-share losses and trying to shore up earnings in the U.K.’s largest apparel business while pushing ahead with an aggressive store-opening program that’s boosting food sales. Investor optimism that the new CEO can restore growth has been lifted by the recent appointment of a new chairman, Archie Norman, who led the turnaround of grocer Asda, and apparel chief Jill McDonald.
The move to scale back discounts contributed to better-than-expected profit for the latest fiscal year, lifting Marks & Spencer’s shares by as much as 2.6 percent in morning trading in London.
Rowe has taken a back-to-basics approach after predecessor Marc Bolland launched trend-conscious seasonal collections anchored around one or two “hero pieces.” The new CEO is focused on M&S’s core customer -- whom he last year defined as a 50-year-old British woman dubbed “Mrs. M&S” -- by producing timeless, understated garments that fit easily into wardrobes and don’t need to be discounted.
“If you are running price promotions all the time you are teaching your customers that what they could buy today might be cheaper tomorrow, and in the long-term it erodes shopper trust,” independent retail analyst Richard Hyman said by phone.
Rowe has also tried to set the company apart from rival Next Plc, whose drive to lure shoppers away from M&S faltered over the latest year. Next CEO Simon Wolfson has acknowledged that the company stumbled by trying to get contemporary trends into stores more quickly, neglecting the simple lines prized by core customers of both retailers.
Despite more full-price transactions, same-store sales in M&S’s clothing and home business fell 5.9 percent in the latest three months, missing analysts’ estimates for a 3.7 percent drop. The comparison was difficult as Easter didn’t take place during the period this year.
Underlying pretax profit fell 10.3 percent to 613.8 million pounds ($795.9 million) in the 52 weeks through April 1, the company said. Analysts expected 596 million pounds.
Both M&S and Next have a pricing battle on their hands this year. As a result of the drop in the pound since the U.K.’s vote to leave the European Union, sourcing costs are rising just as disposable income are being squeezed. M&S expects gross margins in its food business will fall as much as 50 basis points this year.
The company expects margins in clothing to be largely flat. M&S plans to scale back discounting even more, after holding six sales in the latest 12 months, down from nine in 2015/16. It plans to cut that number to four this year.
“By the time we hit our sale in July we will have had 91 full-price days,” Rowe said. “That’s the longest run of full-price days in 10 years.”