M&S Warns Brexit Could Weigh on Retailer’s Business in Ireland

(Bloomberg) -- Marks & Spencer Group Plc warned its businesses in Ireland and France could be materially impacted if Britain fails to reach a trade deal with the European Union before the Brexit transition period finishes at the end of the year.

The London-based clothing and food retailer said it is facing increased administration costs as a result of Britain’s exit from the EU, even if a deal is agreed, which is looking more probable now. If no free trade agreement is signed with the EU and significant tariffs on food are imposed, it warned that retail prices will also rise.

“There would also be a potential further reduction in the profitability of our international businesses,” the company said in its interim earnings statement Wednesday. “In particular this could have a material impact on our businesses in the Republic of Ireland and the Czech Republic and on our franchise food stores business in France.”

M&S said it has invested in technology to track goods and meet new customs and certification requirements that will come into effect in January. It has also created a single export center in Motherwell to manage goods movements from the U.K. to Ireland.

From January without a deal, British retailers could be hit by a number of tariffs on imported goods from the EU, the country’s biggest trading partner, as well as additional paperwork. M&S said it is working with suppliers on “import compliance” for goods inbound to the U.K. from the EU to ensure continuity of supply.

The impact on clothing and housewares is expected to be much less than on food.

The company Wednesday reported sales that held up better than expected during the pandemic, helped by a strong start for the U.K. retailer’s online grocery joint venture with Ocado Group Plc.

The British clothing, home and food retailer sounded an upbeat tone, reporting a half-year adjusted pretax loss of 17.4 million pounds ($22.6 million), less than a third of the loss analysts expected.

Archie Norman, chairman of M&S, said the economic pressures of Covid-19 are forcing the retailer to make decisions it might have hesitated over and thus it’s becoming more agile. “We are using the crisis to reshape the business and will emerge like a coiled spring for the future,” he said in a presentation Wednesday.

M&S’s food business was the best-performing division, helped by strong demand as people work from home, with like-for-like sales rising by 2.7%.

The September launch of the Ocado joint venture has also been successful, with M&S banking a nearly 40 million-pound profit after tax from it.

“The reaction from customers has been ahead of what we thought it would be,” said M&S Chief Executive Officer Steve Rowe.

M&S’s clothing and home business was hit hard during mandatory store closures earlier this year, though that was slightly offset by a gain in online sales.

Rowe said the retailer is fully prepared for a “digital Christmas” and has increased its capacity to handle online orders. He said the business should cope even though a four-week shutdown of non-essential shops in England will begin Thursday. Rowe said any stores which sell food will remain open even if they also offer “non-essential” products such as houseware and clothing, meaning that “broadly our stores will remain fully open.”

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