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Marks & Spencer cancels £100m worth of clothing orders Coronavirus shutdown ravages high street as retailers take emergency action
(about 4 hours later)
Retailer also considers temporary store closures on the back of coronavirus crisis M&S warns of store closures and joins Primark in cancelling orders
Marks & Spencer is cancelling £100m-worth of clothing orders and preparing for temporary store closures as the coronavirus continues to hammer high street businesses. The coronavirus shutdown is laying waste to the high street, with Marks & Spencer warning of store closures, as Primark told suppliers that it was cancelling orders and Debenhams sought extra time to settle its bills.
The retailer has axed its dividend to preserve cash on the basis its clothing arm will be “severely impacted” over the coming months as Britons are forced to stop shopping. On Friday, M&S axed its dividend to preserve cash because its clothing arm faced being “severely impacted” over the coming months as Britons were forced to stop shopping. The retailer also said it was preparing for the likelihood that some stores would have to close temporarily.
The 136-year-old business said it had continued to serve customers “without cease through two world wars” but the Covid-19 outbreak meant it was planning for a prolonged downturn in spending on clothing and homewares. It was already reporting substantial declines in these departments and has deployed a significant number of staff to support its food retail business. The gloomy update came as it emerged that Debenhams chief executive, Stefaan Vansteenkiste, had written to the department store chain’s suppliers to inform them they would be getting their money a month later than expected.
“It is too early to make any reasonable forecast for revenues in the next financial year but we are planning on the basis of a prolonged downturn in demand for clothing and home,” the company said. It set out a number of ways it was cutting costs and said: “We are preparing for the contingency that some stores may have to close temporarily.” “Unfortunately, we have to ask you for extra support,” wrote Vansteenkiste. “We will be extending all supplier payment terms by 30 days – except in those cases where we are already on extended terms. This decision is crucial to make sure we can ultimately pay the outstanding payable balances we have with you.”
M&S said scrapping the dividend would save it £130m as it warned profits for the year to the end of March could fall short of the £440m pencilled in by analysts. The government’s decision to suspend business rates for all retail businesses would also save it about £180m. Debenhams had already asked landlords for a five-month rent holiday as it faces “unprecedented pressures” because of the pandemic. The department store, which has closed 22 stores in recent months and is set to close 28 more next year, was struggling even before the virus hit.
With demand for its spring and summer ranges expected to be weak, M&S said it had cancelled more than £100m-worth of orders with suppliers to prevent being left with a glut of stock. As Next’s chief executive, Simon Wolfson, put it this week: “People do not buy a new outfit to stay at home.” In a sign of the scale of the slump that retailers now expect, Primark has written to suppliers urging them to “seriously consider putting a halt on all current and future production and the purchasing of any materials in relation to any Primark orders”.
“There will be a substantial impact on clothing and home revenue at the very least in the first three to four months of the next financial year,” M&S said. “Although it is possible that this may ease as we get into summer trading, margins are likely to be severely impacted by the surplus of unsold seasonal stock and probable clearance activity in the marketplace. We are therefore taking all possible steps to defer supply. At this stage we are not assuming a return to normal trading in the autumn.” “We have been left with no option but to place a hold on any new orders being placed,” Primark states. Orders already in train were also being reviewed, it said, adding: “It is likely that in most circumstances we will have little option but to terminate those orders pursuant to our contractual rights.”
Unlike high street rivals such as Next and Mike Ashley’s Frasers Group – which also issued a profit warning – M&S is expected to be among a handful of “essential” retailers alongside supermarkets and pharmacists that are permitted to keep their shops open throughout the crisis. Earlier this week Primark’s parent company Associated British Foods said around a fifth of its selling space was already closed as stores shut in Italy, France, Spain and Austria. In the letter, Primark states: “We foresee that this pattern of store closures will continue over the coming days and weeks.”
M&S said it had served customers “without cease through two world wars” but the Covid-19 outbreak meant it anticipated the performance of its clothing and homewares departments – where sales were already falling – would worsen. It was seeing substantial declines in these departments and has redeployed many staff to support its food retail business amid a run on supermarkets by panicked shoppers.
With demand for its spring and summer ranges expected to be weak, M&S has ditched plans to order £100m-worth of goods so as to avoid being left with a glut of stock. As Next’s chief executive, Simon Wolfson, put it this week: “People do not buy a new outfit to stay at home.”
Unlike high street rivals such as Next and Mike Ashley’s Frasers Group – which on Friday issued a profit warning and announced plans to close five Jack Wills stores – M&S is expected to be among a handful of “essential” retailers alongside supermarkets and pharmacists permitted to keep shops open throughout the crisis.
M&S said its food halls were busier than usual but its bias towards selling chilled and fresh food (which have a short shelf life) meant it had not experienced the same huge sales uplifts experienced by the major grocers.M&S said its food halls were busier than usual but its bias towards selling chilled and fresh food (which have a short shelf life) meant it had not experienced the same huge sales uplifts experienced by the major grocers.
In further evidence of the tough outlook faced by retailers, Hotel Chocolat said the virus was expected to mean the closure of some or all of its 125 UK stores. Sales were running down 5% this month, with Mother’s Day and Easter – two important trading events that account for more than 10% of its annual sales – set to be a washout. The upmarket chocolatier also announced plans to raise £22m from investors, partly as a buffer to cover the financial impact of the virus. M&S said scrapping the dividend would save £130m as it warned profits for the year to the end of March could fall short of the £440m pencilled in by analysts. The government’s decision to suspend business rates would also save it about £180m.
The board of Travis Perkins, the builders’ merchant, also took action, cancelling its dividend and abandoning the imminent demerger of its Wickes chain to allow it to focus on crisis management ahead of an expected sharp downturn in sales if it was forced to shut its stores. In further evidence of the tough outlook faced by retailers, Hotel Chocolat said the virus signalled the closure of some or all of its 125 UK stores.
The Shore Capital analyst Greg Lawless said: “The UK retail sector is facing a storm of reduced footfall to the high street, particularly for the general retail sector. Nobody knows how long normal lives will last with restrictions in place and so the impact on financial forecasts is unknown. The Shore Capital analyst, Greg Lawless, said: “The UK retail sector is facing a storm of reduced footfall to the high street, particularly for the general retail sector. Nobody knows how long normal lives will have restrictions in place – so the impact on financial forecasts is unknown.”
“Cash preservation is the new priority. Those companies that adapt quickly and do the right thing will survive but we are in uncharted territory.” “Cash preservation is the new priority,” added Lawless. “Those companies that adapt quickly and do the right thing will survive but we are in uncharted territory.”
In other developments:
Harrods, the luxury department store, became the latest department store in London’s West End to announce it was “closing for a while”.
Travis Perkins, the builders’ merchant, cancelled its dividend and delayed the demerger of its Wickes chain to focus on crisis management ahead of an expected sharp downturn in sales if it was forced to shut its stores.
Online estate agent Rightmove reported a dramatic fall in home buying and flat hunting.
The estate agents Foxtons warned of a “material” disruption to its business and said it has fully drawn down on a £5m overdraft to boost its cash reserves.
InterContinental Hotels Group, the owner of Holiday Inn and InterContinental chains, said demand for hotels was the lowest “it has ever seen”.
Heathrow said it would stay open to safeguard “vital supply lines” but it had to downsize. It has cancelled executive pay.