Three Learnings From Marks & Spencer’s Latest Results

For 4Q20, the company reported comparable sales growth of (13.8)% in UK clothing and home, versus consensus of (14.2)%; and +4.6% in UK food, versus consensus of +5.2%. For the subsequent six weeks, ended May 6, M&S reported total sales down 75.0% in clothing and home and down 8.8% in food.

1. There is resilience in diversity.

M&S’s mix of clothing, homewares and food has proved to be a strength, with the relative resilience of food demand offsetting weakness from enforced closures of clothing and home stores. As shown below, M&S has seen a variation in performance by product and channel, with online sales up almost 20% in the quarter to date and much more strongly in the most recent weeks.

Source: Company reports

2. The crisis can be a catalyst for organizational change.

M&S could come out of the crisis a leaner and more nimble company. CEO Steve Rowe said the crisis would “accelerate transformation” at M&S, showing how the retailer can work faster, more flexibly and more effectively. Operating as an online-only business in clothing and home forced M&S to “thinking and organizing with almost a pure-play mentality to compete effectively,” Rowe said. In apparel, the crisis has forced the rationalization of SKUs and will prompt M&S to work with fewer, larger suppliers.

M&S has been reshaping its store estate and “there has probably never been a better time” to relocate stores and improve the quality of store space, Rowe said. The company has opened negotiations with landlords of stores to establish whether onerous lease terms will be viable in the post-coronavirus world.

The company plans around £500m of cost reductions in FY21, including in marketing, recruitment, technology, logistics and fixed property costs.

Source: Company reports

3. The shape of future consumer demand remains highly uncertain.

Based on sales trends in the first quarter so far, M&S management laid out a scenario of a 74% fall in sales in clothing and home in 1Q21. Under this scenario, sales declines would ease in 2Q and 3Q but still be down 6% in 4Q. Rowe emphasized that this did not represent a forecast, but is the scenario against which M&S has planned steps to reduce costs and manage cashflow.

Management noted that from the outset it has planned for a crisis that will last through the year and beyond. And even once the crisis phase is over, “customers may never shop the same way again,” said Rowe.

Source: Company reports