Volatile Christmas trading leaves more of a mess at retailer M&S

Last year was grim for retailers, while M&S, the clothing sector’s chronic underperformer, struggled at Christmas too. Matthew Partridge reports.

Last year was a horror story on the high street. The British Retail Consortium says retail sales suffered their “biggest decline in 25 years” in 2020, says Richard Parrington in The Guardian. While total sales only fell by 0.3%, in itself “the worst performance since records began in 1995”, this masks a “dramatic collapse” in some sectors. Sales of food bought from shops increased, owing to the closure of restaurants and pubs, but “sales of all other products fell 5% from a year earlier”. Sales of non-food items in shops, as opposed to online, collapsed by 24%.

One retailer that has done particularly badly is Marks & Spencer, says Ashley Armstrong in The Times. Not only did the company announce its “first loss in its 94-year history” last November, but it has now said that “volatile trading” over the festive season has led to total clothing sales falling by 25.1% to £787 million over the 13 weeks to Boxing Day. Even strong online sales growth of 47.5%, helped by an improved presence on social media and the ability to ship trapped products in closed shops, failed to compensate for a 46.5% fall in in-store clothing sales.

Even food sales have failed to provide much a silver lining for M&S, says Ben Marlow in The Daily Telegraph. In theory, the fact that their food halls were allowed to remain open should have given them a competitive boost. However, unlike the supermarkets, they were still forced to cordon off their clothing aisles, while the closure of their cafes also hit the bottom line. No wonder, then, that the group has decided to “hang onto the Treasury’s business rates freebie” while the grocers and other retailers allowed to stay open have handed the tax break back.

Light at the end of the tunnel?

Investors shouldn’t panic just yet, says Jim Armitage in the Evening Standard. While the Covid-19 closures may have produced “grim” headline numbers, there are some “good signs”. For example, the Ocado tie-up “paid off handsomely”, with online grocery sales up. M&S have also “gauged shoppers’ demands far better than in recent times”. That has reduced the need to discount unsold goods – good news for margins. Meanwhile, its decision to buy Jaeger from Edinburgh Woollen Mill suggests that it wants to become “a destination for smart, middle-aged, middle class brands”, rather than clinging to the “M&S-only legacy of St Michael”.

Still, some clothing retailers have thrived during this crisis, says Jonathan Eley in the Financial Times. Next’s “years of investment in its online channel”, for instance, enabled it to limit the fall in the sales in the nine weeks to Boxing Day to just 0.5%. This also means that the chain is “far better positioned” to deal with the “demanding trading conditions”, posed by the current lockdown than many of its rivals. Not only does the company expect to make a pre-tax profit of £370m this fiscal year (which ends on 31 January), but it hopes to increase this to £670m in the following 12 months.

Recommended

Imperial Brands has an 8.3% yield – but what’s the catch?
Share tips

Imperial Brands has an 8.3% yield – but what’s the catch?

Tobacco company Imperial Brands boasts an impressive dividend yield, and the shares look cheap. But investors should beware, says Rupert Hargreaves. H…
20 May 2022
What's behind Sri Lanka’s crippling debt crisis?
Emerging markets

What's behind Sri Lanka’s crippling debt crisis?

Sri Lanka has been hit by a triple whammy of economic shocks and has gone to the IMF for a bailout. It may just be the first domino to fall in a globa…
20 May 2022
Investing in drugmakers: uncommon profits from curing rare diseases
Share tips

Investing in drugmakers: uncommon profits from curing rare diseases

Treatments for medical conditions with only a small number of sufferers can still be very attractive for pharmaceutical companies and investors becaus…
20 May 2022
Share tips of the week – 20 May
Share tips

Share tips of the week – 20 May

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 May 2022

Most Popular

The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
18 May 2022
Aviva: a share for income investors to tuck away
Share tips

Aviva: a share for income investors to tuck away

Insurance giant Aviva is one of the highest yielding stocks in the FTSE 100 – and it’s cheap, too, making it a tempting target for income investors. R…
18 May 2022
Despite the crypto crash, bitcoin still has a bright future
Bitcoin & crypto

Despite the crypto crash, bitcoin still has a bright future

Cryptocurrencies have crashed hard, with bitcoin down by more than 50% from its peak. But, says Dominic Frisby, bitcoin still has a future – it is the…
19 May 2022