M&S has been losing customers to its rivals and next week's trading update is expected to give little comfort. What next for Sir Stuart, asks Peter Cripps
Who would want to be in Sir Stuart Rose’s shoes? M&S’s last trading update showed overall like-for-like sales down 7.1%, with a 5.2% fall-off in food sales, and most industry insiders expect next week’s trading update to be little better.
Things don’t bode well for the retailer, which, according to the latest switching data from TNS Worldpanel for the 12 weeks ending 24 February, is losing net market share to almost every retailer except Somerfield, Netto and the independents. So how has it got itself into such a mess? And can Sir Stuart sort it out?
When he unveiled M&S’s last set of quarterly results, Sir Stuart announced plans to reduce operating costs through the closure of 27 stores, a 15% cull of head office staff and a cut-back of the company pension scheme. It would be no surprise if further cost cutting measures were revealed next week.
But this wouldn’t address M&S’s core problem – its proposition – say experts. “If you wanted to invent a retailer that would do badly at the moment, it would be a premium food retailer and a mid-market clothes retailer rolled into one,” notes Nick Bubb at Pali International wryly.
Contrary to popular belief, shoppers are not deserting premium food retailers per se. The TNS data shows while Morrisons (28%) and Asda (21%) took most of the share, Waitrose also benefited at M&S’s expense, with a 2.7% gain. “M&S is the weak player in a very tough, competitive marketplace,” says one analyst. “All the other grocers are performing well and they are feeding off M&S.”
M&S’s problems are compounded by the fact that, unlike Waitrose or Sainsbury's, M&S attracts discretionary rather than core grocery spend. Because of its perceived high prices, many shoppers are spending less there or shopping elsewhere. “M&S is at the premium end of the market at a time when everyone is generally trading down,” says TNS Worldpanel director of communications Edward Garner. “You can’t do a full shop, so customers have to shop elsewhere and are being tempted to buy more at other supermarkets.”
Having reduced prices on 560 products – about 10% of its food lines – in the past year, M&S is trying to boost its value-for-money credentials without compromising its high-quality own-label food and fresh produce. It is also continuing with its ‘Dine In For’ promotions.
While analysts acknowledge that the promotions work well, some question their impact on the business. “The only thing supporting the business is the Dine In promotion and it’s decreasing M&S’s margin,” argues Bubb. “It trains customers to think prices will be cut again and it’s not a long-term answer to the problem.”
Neither, say experts, is rolling out branded goods across its entire estate, which could be on the cards following the extension of its trial. “It’s impossible to see how they can compete with the big four on price and I think it could do quite a lot of damage to their own brands,” says one senior retail figure. “They should stick to their core range and try to bring some value into it.”
JP Morgan analyst Richard Chamberlain agrees. “Brands are lower margin, and would reduce M&S’s point of difference,” he says. “It doesn’t need brands as it is already taking the right steps to correct its recent under-performance.”
Of course, even if overall pre-tax profits for the year fall from £1bn to £600m as predicted, M&S will still be left with a profit margin of about 6%. But that doesn’t detract from the need to pay more attention to getting its business infrastructure right, believe experts.
“Too many on-shelf products have a short shelf-life, which means they are not getting to the store quickly enough,” says Shore Capital’s Kate Calvert. “Product availability is pretty poor as well.”
No wonder Sir Stuart is praying for divine inspiration.
Who would want to be in Sir Stuart Rose’s shoes? M&S’s last trading update showed overall like-for-like sales down 7.1%, with a 5.2% fall-off in food sales, and most industry insiders expect next week’s trading update to be little better.
Things don’t bode well for the retailer, which, according to the latest switching data from TNS Worldpanel for the 12 weeks ending 24 February, is losing net market share to almost every retailer except Somerfield, Netto and the independents. So how has it got itself into such a mess? And can Sir Stuart sort it out?
When he unveiled M&S’s last set of quarterly results, Sir Stuart announced plans to reduce operating costs through the closure of 27 stores, a 15% cull of head office staff and a cut-back of the company pension scheme. It would be no surprise if further cost cutting measures were revealed next week.
But this wouldn’t address M&S’s core problem – its proposition – say experts. “If you wanted to invent a retailer that would do badly at the moment, it would be a premium food retailer and a mid-market clothes retailer rolled into one,” notes Nick Bubb at Pali International wryly.
Contrary to popular belief, shoppers are not deserting premium food retailers per se. The TNS data shows while Morrisons (28%) and Asda (21%) took most of the share, Waitrose also benefited at M&S’s expense, with a 2.7% gain. “M&S is the weak player in a very tough, competitive marketplace,” says one analyst. “All the other grocers are performing well and they are feeding off M&S.”
M&S’s problems are compounded by the fact that, unlike Waitrose or Sainsbury's, M&S attracts discretionary rather than core grocery spend. Because of its perceived high prices, many shoppers are spending less there or shopping elsewhere. “M&S is at the premium end of the market at a time when everyone is generally trading down,” says TNS Worldpanel director of communications Edward Garner. “You can’t do a full shop, so customers have to shop elsewhere and are being tempted to buy more at other supermarkets.”
Having reduced prices on 560 products – about 10% of its food lines – in the past year, M&S is trying to boost its value-for-money credentials without compromising its high-quality own-label food and fresh produce. It is also continuing with its ‘Dine In For’ promotions.
While analysts acknowledge that the promotions work well, some question their impact on the business. “The only thing supporting the business is the Dine In promotion and it’s decreasing M&S’s margin,” argues Bubb. “It trains customers to think prices will be cut again and it’s not a long-term answer to the problem.”
Neither, say experts, is rolling out branded goods across its entire estate, which could be on the cards following the extension of its trial. “It’s impossible to see how they can compete with the big four on price and I think it could do quite a lot of damage to their own brands,” says one senior retail figure. “They should stick to their core range and try to bring some value into it.”
JP Morgan analyst Richard Chamberlain agrees. “Brands are lower margin, and would reduce M&S’s point of difference,” he says. “It doesn’t need brands as it is already taking the right steps to correct its recent under-performance.”
Of course, even if overall pre-tax profits for the year fall from £1bn to £600m as predicted, M&S will still be left with a profit margin of about 6%. But that doesn’t detract from the need to pay more attention to getting its business infrastructure right, believe experts.
“Too many on-shelf products have a short shelf-life, which means they are not getting to the store quickly enough,” says Shore Capital’s Kate Calvert. “Product availability is pretty poor as well.”
No wonder Sir Stuart is praying for divine inspiration.
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