Marks & Spencer’s biggest round of job cuts ever has sent shockwaves through retail. Around 7,000 roles will be axed – and that is on top of 950 redundancies revealed just a month ago.

In total, M&S is losing almost 10% of its workforce across all levels of the retail institution from head office to stores.

Proposed headcount reduction across the business

  • 12% – customer assistants
  • 17% – store management
  • 18% – clothing and home support centre management
  • 40% – retail and property support centre management, including regional management

Where the axe has fallen tells the story not just of M&S’ ongoing transformation, but of how retail is changing – for the foreseeable future and, to a significant degree, probably permanently – as a result of the impact of the coronavirus pandemic and shopping habits that were already in flux. 

The numbers reveal that fashion is under pressure – true, too, for many of M&S’ rivals in apparel. They show decimated in-store footfall as consumers increasingly buy online and highlight the adoption of new technology, which has led to new ways of working reliant on fewer employees.

‘Accelerated’ has been one of the business buzzwords of the health emergency. Trends already building momentum are now speeding forward at a pace more familiar for Lewis Hamilton. At M&S, the pandemic has driven the retailer to attempt to “deliver three years of change in one”, in the words of chief executive Steve Rowe.

M&S had to change its ways even before the outbreak and had set out plans to reinvent itself as a digital-first business. 

Perversely, given the number of jobs being lost, there is actually some reassurance in today’s update that the retailer’s strategy remains fundamentally unchanged. It may be progressing uncomfortably but, rather than having to jettison its plans, M&S is speeding them up – a sign of longer-term confidence in contrast to the insolvency processes underway elsewhere in the industry.

Group revenue

 % change to last year 19 weeks to August 8, 2020 13 weeks to August 8, 20208 weeks to August 8, 2020 
Clothing and home  -49.5 -38.5   -29.9
Food   -1.1  2.5 2.5 
International   -31.9  -24.6  -19.9
Group   -19.2  -13.2  -10.0
Clothing and home.com  32.0 42.2   39.2
M&S.com  38.9 46.9   40.7
Source: Marks & Spencer

M&S’ sales have improved as the weeks have gone by but still make for sombre reading. Shoppers’ reluctance to visit stores was evident in the fact that in the eight weeks since they reopened after lockdown, clothing and home sales in shops slumped 47.9%, while online revenues climbed 39.2% year-on-year.

Online is not as yet making up for the loss of store sales, but it is bringing some unwelcome developments. 

Ecommerce accounted for 41% of total clothing and home sales during that same eight-week period to August 8. That’s good. However, there has been “a substantial change in delivery mix” – 68% of orders were delivered to home versus 29% the previous year. That’s not so good because the costs associated with last-mile delivery typically erode margin.

While M&S’ Castle Donington distribution centre, where capacity has been added, seems to have coped efficiently, that switch to online is a force behind the jobs lost elsewhere in the business. 

Fewer employees are needed in shops where fewer clothes are being sold and workers are increasingly being asked to multitask, as they did when the outbreak was at its peak and clothing and home staff switched into supporting food teams. Staff are also using new technology to create efficiencies – M&S said its partnership with Microsoft has ”enabled us to reduce layers of management and overheads in the support office”.

castle donington

Capacity has been added in distribution as online shopping increases

Fewer buyers are needed for a smaller clothing business. Roles in departments such as marketing are being reduced as duties such as search engine optimisation are subsumed into the dot-com division. 

As M&S house broker Clive Black of Shore Capital puts it: “Technology deployment and flexible working, taking down years of demarcation between employees engaged in food and non-food activities, is liberalising the labour process, making it more productive and so permitting further delayering of management.”

In the end, will M&S be a better business as a result of these changes? That’s the fundamental question. 

Despite the human toll of Covid-19 and all the trading numbers preceded by minus signs, M&S’ performance has actually been better than expected. Its original coronavirus scenario, outlined at the time of its results, pencilled in a 70% slump in revenue at the UK clothing and home division for the four months to July and “only a gradual return to original budgeted levels by February 2021”, at a cost to annual sales of about £1.5bn. 

Today, despite the obligatory caution about what the future might hold, M&S said it has “performed ahead of the scenario announced at the year-end in revenue and cash”.

Broker Jefferies observed that that the update “confirms a business with a rosier outlook than that provided in May, during the depths of lockdown”.

And Investec maintained: “While we continue to see the transformation strategy as more of a stabilisation strategy, we believe the business will emerge from the pandemic more streamlined and in a stronger market position.”

The retailer is creating some new jobs, including 150 roles at Castle Donington and its strongly performing food division is about to commence selling online for the first time when a joint venture with Ocado goes live next month – another initiative that, if all goes well, should be in tune with the spirit of the times.

Rowe and Steiner

Ocado boss Tim Steiner and M&S CEO Steve Rowe

Some of the issues M&S sought to address through its latest transformation programme, such as regaining its fashion prowess, remain to be resolved and have nothing to do with the pandemic.

But ground is being made in others, such as how the retailer sells and the consequent need for a bigger, better online operation.

Today, perhaps the biggest surprise was that there are no further store closures envisaged. M&S remains confident in its estate overhaul plans, such as relocating to retail parks – locations that have held up well since reopening as shoppers shun city centres. As so many lose their jobs, perhaps it is best to be grateful for small mercies.

For the 9% of M&S’ staff leaving during the next three months, the blow will be hard, albeit cushioned by the fact that most are anticipated to be voluntary departures or older workers taking early retirement. For the remaining 91%, there is at least some reassurance that the direction of travel is clear and that the pandemic has reinforced the logic of the strategic course embarked upon.

Some may criticise M&S leaders for being slow to recognise the need for radical change, but now that they have the medicine, though impalatable, looks like its best chance.

For some time, M&S may be a smaller business as trading patterns change and store sales suffer. It may also be a lower margin business as the dynamics of the shift online play out in higher costs there. But assisted by scale and financial strength, M&S should, unlike some of its competitors, be a survivor business.