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Marks & Spencer suffers biggest clothing sales fall in 10 years Marks & Spencer suffers biggest clothing sales fall in 10 years
(about 2 hours later)
Marks & Spencer’s clothing sales fell heavily in the first quarter of its financial year, as its new boss, Steve Rowe, reduced prices and cut back on promotions. Marks & Spencer has suffered its biggest fall in clothing sales in more than a decade, as new boss Steve Rowe cuts prices and slashes the number of promotions the retailer holds.
Clothing and home sales at stores open a year or more dropped 8.9% in the three months to 2 July, its worst performance in more than a decade. Equivalent food sales fell 0.9%. Clothing and home sales at stores open a year or more dropped 8.9% in the three months to 2 July, a far bigger fall than analysts had forecast.
Total UK sales declined by 1.1% and were down 4.3% at established stores. M&S said it was too early to judge the effects of last month’s vote to leave the EU but consumer confidence had weakened in the run-up to the referendum. “These are not the numbers I want to see but they are the numbers I expected to see,” said Rowe, who took over as chief executive three months ago. He added that the retailer’s clothing prices had been too high and too promotional, fuelling a damaging cycle that meant shoppers had become trained to wait for sales before buying anything.
Rowe took over three months ago and pledged to revive M&S’s ailing clothes division, which has suffered fierce competition from the likes of Next and Primark. He has kept direct control of the non-food business since taking over as chief executive. Rowe said confidence had weakened in the run-up to referendum but M&S had not detected any fresh falls. All fashion retailers are facing tough trading conditions as UK clothing sales are falling for the first time in six years and the poor weather has also dampened demand for summer ranges.
“It’s very early to say what the impact [of Brexit] will be,” he said. “We’ve not seen any further dip off since the referendum. We are holding our nerve on this strategy as it is the right one for M&S.”
Related: Union urges M&S to open talks about pay and pension changesRelated: Union urges M&S to open talks about pay and pension changes
The drop in clothing and home sales has accelerated sharply since the fourth quarter of last year when like-for-like sales fell 2.7%. Clothing sales fell by a similar amount over Christmas 2008, following the collapse of Lehman Brothers, but this is M&S’s worst performance since it reported an 11% slump in 2005, when Sir Stuart Rose was leading a turnaround of the business.
Rowe said: “A key part of our recovery plan for clothing and home is lowering prices and reducing promotions. M&S’s shares, which are at a seven-year low, have come under pressure as investors assess the impact of Rowe’s turnaround plan on profits as well as a possible high street downturn following the country’s vote to leave the EU. Analysts point to surveys carried out in the wake of the referendum result that suggest it has hit consumer confidence.
“As a result, we ran fewer price promotions while continuing to lower prices to deliver real value to our customers, and moved the summer sale to July. We knew our actions would reduce total sales but we are seeing some encouraging early signs.” The post-Brexit collapse in the value of the pound is also bad news for Rowe’s turnaround as M&S, in common with other clothing retailers, imports goods in dollars. M&S said it imported $1bn - $1.5bn (£770m – £1.16bn) worth of goods.
M&S started its summer sale two weeks later than last year and cut the number of online discount days from six to one during the quarter. It cut prices on 1,000 non-food items and those items had strong sales growth in the quarter, it said. The M&S finance director, Helen Weir, said the retailer was 90% hedged for this year. “The main impact will start to come through for autumn/winter 2017 but that clearly depends on what happens to the exchange rate,” she said, adding: “There are a number of things we can do on the sourcing side.”
M&S, whose shares are at a seven-year low, said its guidance for annual profit remained unchanged and that it was running the business for a challenging trading environment. Rowe has pledged to revive M&S’s ailing clothes division, which has suffered fierce competition from the likes of Next and Primark. He has kept direct control of the non-food business since taking over as chief executive.
Total UK sales declined by 1.1% and were down 4.3% at established stores. The drop in clothing and home sales has accelerated sharply since the fourth quarter of last year when like-for-like sales fell 2.7%. Equivalent food sales fell 0.9%.
Rowe said: “A key part of our recovery plan for clothing and home is lowering prices and reducing promotions. As a result, we ran fewer price promotions while continuing to lower prices to deliver real value to our customers, and moved the summer sale to July. We knew our actions would reduce total sales but we are seeing some encouraging early signs.”
M&S started its summer sale two weeks later than last year and cut the number of online discount days from six to one during the quarter. It cut prices on 1,000 non-food items and those items saw strong sales growth in the quarter, it said. The changes to its pricing strategy accounted for more than half of the 8.9% fall in clothing and homes sales, the retailer said.
Rowe, who has worked at M&S for 26 years, used his first annual results presentation in May to outline a strategy promising sharper clothing prices and a less slavish pursuit of catwalk trends. Rowe also vowed to put more effort into better serving its most loyal group of shoppers, nicknamed Mrs M&S. These fiftysomething women had been neglected as it chased younger shoppers but Rowe promised to “cherish and listen to her”.
“There is no hiding from the fact that both the overall market and M&S’s performance have been soggy at best in the first quarter,” said Canaccord Genuity analyst David Jeary. “The dotcom business also struggled, against a tough +39% comparative, with sales up 0.5%, but this also largely reflects the shift in and alignment of promotional pricing between the stores and online.”
Despite the dire trading figures M&S said its guidance for annual profit remained unchanged.