ANALYSIS_ "The 2014 Christmas trading results for Marks & Spencer are more disappointing than expected." This conclusion by Philip Benton, Research Analyst at Euromonitor International, sums up the general sentiment towards the British retailer's holiday season.
Even Marc Bolland, CEO at Marks & Spencer, called the quarter – putting the stress on the distribution problems that caused a fell sharp in sales - “disappointing”.
Particularly, it was the sales of general merchandise, which includes clothing, gifts and homewares, which fell the most, losing 5.8 percent in the 13 weeks to Dec. 27. This dip was cause of distress for the retailer and had the industry talking as it is the 14th consecutive quarterly decline and well below the 3 percent drop expected by analysts.
“Once Britain’s greatest retailer, M&S is fast becoming an also-ran,” said John Ibbotson, director of retail consultants Retail Vision. He adds that “The quality, price and website of its clothing arm are simply not good enough compared to the ever buoyant Next.”
On the wake of the news, the stock lost 4.7 percent at, the biggest drop on the UK’s FTSE-100 index and wiping out some of the 10 percent gain over the last 13 weeks.
However, the Dutch executive exudates confidence as he assures that “the company is completely unified behind this strategy. We are pulling the right levers and will certainly be able to improve on the performance we saw in December,” reported the ‘Daily Mail’. It is noteworthy that over the festive period, the retailer´s food sales strengthened to a slight rise whereas it suffered a sharp dive in clothing sales (down 5.8 percent.) Online sales also declined, 5.9 percent decline.
City remains confident on Bolland's plans
But it is not all distrust for Marks & Spencer as the City has maintained its support to Bolland´s plans for the past five years. As the ‘Telegraph’ reminds, in spite of declining profits since his arrival in May 2010, the share price has increased by 22 percent.
Likewise, Bolland insists increasing sales is less important than maintaining profits, adding: “We don’t want to be in supermarket territory with our fashion product. We want to improve quality and improve our styles. So we have taken a step to say this is not all about volume growth. This is about positioning the brand and getting more gross margin to make the business more profitable.”
“Marc Bolland started a radical restructuring of M&S’ apparel operations in 2014 with the promise to directly source 60 percent of its clothing by 2017. We saw the beginnings of this strategy start to take shape in November 2014 as Bolland announced they had increased their internal sourcing from 20 percent to 25 percent, with 35 percent expected by the end of 2014. With more control over direct design and manufacturing, it will allow M&S to respond quicker to consumer demands and improve speed and efficiency in their supply chain,” point out Euromonitor International.
“However, M&S has been slow to embrace the potential of online shopping, with Euromonitor International estimating the online apparel and footwear market to be worth over 9 billion dollars in 2014, and despite overhauling their transactional website and mobile shopping app which has acted as a persuasive tool for consumers and helped to increase traffic considerably,” remarks Benton.
“M&S must learn from the fiasco of the delayed ‘Black Friday’ deliveries and embrace a true omni-channel strategy akin to John Lewis and Next if they are able to seriously compete as an online retailer,” recommends Benton.
Womenswear, Marks & Spencer´s main challenge
To date, analysts agree that Bolland's biggest challenge has been making the company's womenswear - the best performing category in general merchandise - more appealing to its core female customers. The industry nod to the retailer´s female fashion´s revamp has not translated into a sustainable improvement in sales yet.
"We've made a trade off...our discounting was lower over December than last year," he told reporters, spilling the beans on his attempts to turn around the business. "We have been very clear on our priorities for the year when we said that the improvements of gross margins for the business was a strong priority," reminded Marks & Spencer´s CEO.
In this regard, analysts said this, as well as a reduction in the expected increase in operating costs, would probably keep full-year profit forecasts unchanged at around 640-650 million pounds.
Tony Shiret, Espirito Santo analyst, said if M&S had posted such a negative sales figure a few years ago, "the wheels would have completely fallen off in terms of profit". However, Shiret remains positive: "They're in decent clean, shape going forward," Shiret said. "There are uncertainties, but the bottom line is they need to deliver some sales growth and when will that start to happen."