After a difficult season for many fashion retailers, no big ‘loser’ has yet been identified… but is Marks & Spencer a candidate?

It is a curious fact that although fashion retailers have had a surprisingly tough time in recent months, despite the talk of economic recovery and rising consumer confidence, all the big companies that have reported recently seem to have claimed to be ‘winners’ and it is hard to see who has been underperforming and dragging the market down.

Back on June 18 House of Fraser reported strong current trading and although, with the summer Sales starting early on the high street, it would have surprised few people to see Debenhams issue a profit warning in trading update on June 25, it said it was still on track to meet full-year profit expectations, whilst John Lewis has been doing pretty well in fashion and retailers such as Asos have been booming.

With the weather staying slightly cool, the accountants BDO have reported a poor June (excluding online) for their sample of fashion retailers, but these are medium-sized chains and it is the likes of M&S that can tell us more about the mass-market.

So what did M&S say today in its first-quarter update for the 13 weeks to June 27?

‘Challenging and promotional quarter’

Well, M&S confirmed that it had indeed been a “challenging and promotional” quarter for the UK fashion market, but claimed that the 0.4% drop in general merchandise like-for-like sales was better than the c1% fall that was expected and maintained that the strong 150 to 200bp gross margin uptrend remained intact, despite higher mark-down activity.

The latter point shows just how good a job sourcing experts the Lindsey brothers have done on reshaping the supply chain to higher margin Far East products, so that it would take a veritable promotional earthquake to shake the gross margin uptrend.

As for the former point, M&S is a serial disappointer when it comes to non-food trading updates, but it is very good at the dark art of ‘expectations management’ and it is fair to say that the City had been softened up for weak clothing sales in the period, despite the weak comps.

Online resurgence

A year ago the perennially embattled chief executive Marc Bolland had to stand up before shareholders at the M&S AGM at Wembley and admit that the much vaunted relaunch of the M&S website last spring had been botched, with first-quarter online general merchandise sales down by as much as 8% because of the site registration and navigation problems.

A year on and M&S is back in the online game. The 39% online GM sales bounce-back in quarter-one was quite impressive and, although there is a suspicion that some of that was driven by increased online stock clearance promotions, management trumpeted the across-the-board improvement in customer conversion and satisfaction metrics online, particularly in mobile and tablets.

The fact is that c30% online GM growth over a two-year timescale in the last quarter is no more than the whole online non-food market has been doing, so M&S still has a long way to go to match the kind of multichannel penetration enjoyed by retailers such as John Lewis.

Stores suffer

And what are we to make of the other key fact, that M&S stores were 4% to 5% down like-for-like in GM in the quarter?

M&S said that the stores benefited a year ago from the business of frustrated online customers but, if so, that was not particularly evident at the time, with overall sales still down.

Fortunately, retailers these days are judged on their combined store and online sales performance, so on that basis it would be slightly unfair to say that M&S was one of the losers in fashion this spring, even if over time it does give a very good impression of running up a down escalator.

So the search goes on for who the big loser has been in fashion recently. Anybody spoken to Sir Philip Green recently about how Arcadia has been doing?

  • Nick Bubb, independent retail analyst