Marks & Spencer continues to promise that things will soon get better for the struggling retailer, but somehow they never do.
A year ago the great hope was that Marks & Spencer would be able to compete on a level playing field with Next at Christmas in terms of late cut-off times for next-day delivery, after the relaunch of its online platform and the completion of its distribution systems overhaul.
As has been well-documented, the website relaunch did not go well, but M&S promised that online general merchandise sales would still return to growth by Christmas, so it is galling for shareholders to hear that, after a disastrous time with the much-vaunted Castle Donington ecommerce warehouse in December, online sales fell by 6% in the final quarter.
The retailer’s general merchandise director, John Dixon, will also have been dismayed to hear of the warehouse problems, given the importance of strong online sales in securing growth for fashion retailers this Christmas.
The online fiasco - through no fault of Dixons’ - has spoilt his chances of eventually becoming the leading internal candidate to replace the constantly beleaguered chief executive Marc Bolland in due course.
Given the emphasis on increased “accountability” in the new M&S senior management structure put in place at the end of June last year, it will also be interesting to hear who has been held accountable for the disaster with the online business.
The upshot of all this was a near 6% fall in M&S general merchandise like-for-like sales in the Christmas quarter, despite soft comps and a well-received new womenswear range. The extent of the decline is embarrassing relative to peers such as Next and John Lewis.
M&S tried to salvage something from the wreckage by claiming that it did slightly less discounting in the Christmas quarter than a year ago, despite a highly promotional high street environment. It is true that M&S did not go on Sale on December 21 (as it did in 2013) and that it did not call its weekend promotions ‘Sales, but it did offer a raft of deals, especially on outerwear.
Nevertheless, M&S was just about able to hold its guidance of 150bps to 200bps improvement in general merchandise gross margins, thanks to the sterling efforts of the sourcing experts, the expensively recruited Lindsey brothers.
More cost-cutting saved M&S from having to issue a profit warning, although it appears that much of the move down in expected annual growth in operating costs from 3.5% to 2% (despite a hefty hike in the depreciation charge) is down to lower volume-related costs and a further pruning of the staff bonus provision.
If general merchandise was another damp squib, what (talking of jam tomorrow) was the outcome for M&S Food in the Christmas quarter? M&S used the words “very good” to describe its performance, but the flat like-for-like sales in food were disappointing and below expectations, even though M&S claims that “the industry” was 3% worse.
The international division also failed to provide any offset to the problems of the UK core business for M&S, with sales down by 8.8%, beset by the currency problems and macro-economic pressures in the Russia and Ukraine franchise operation.
Hope springs eternal that one day M&S will get its act together and get profits moving forward at last, but the world is not standing still and disappointed online customers will have found plenty of decent alternatives. Perhaps shareholders should accept that the business is in terminal long-term decline and adjust their expectations accordingly.
- Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos Retail Think-Tank.