Thank heavens for Marks & Spencer. No, I’m not referring to its ready meals saving my latest dinner party.
Thank heavens for Marks & Spencer. No, I’m not referring to its ready meals saving my latest dinner party. No, this time we can thank them for giving us a little light in the retailing economic gloom. Just when you thought that every retailer was suffering in the current climate, M&S pops up with a pleasant surprise; a marginal improvement in underlying general merchandise like-for-like sales and three inflation-driven points on food.
OK, so not the most sparkling results, but impressive compared to many other retailers. Recession may have receded into stagnation, but the post-Christmas consumer hangover is really hurting. Cost inflation has kicked up from commodities, especially cotton, copper and oil. This is putting pressure on margins with retailers reluctant to increase prices.
The inflationary pressure is certainly not coming from wages. Unit wage costs across the whole economy have actually fallen by 0.5% per annum, and in manufacturing by 3.9%.
A 2% increase in nominal wages is being more than funded by productivity improvements.
CPI inflation is growing by 4%, despite retailer pressure, so wages are falling in real terms. And one person’s wage bill is another person’s spending power. Together with higher taxes and widespread fear of - or actual - redundancy, inevitably demand remains weak. And with banks still reluctant to lend, consumers certainly aren’t borrowing to fund consumer expenditure.
It seems like a pretty nasty spiral for most retailers at the moment. But there are some who have an additional structural problem - the internet. The lucky retailers - like the grocers - just find that it gives them extra costs in IT and home delivery. The unlucky ones, like music and book stores, are finding that they are being disintermediated. Others, like the electronics retailers, are finding that low-cost internet rivals are eating away at market share and undermining gross margins. The combination of weak consumer demand, losing share to low-cost competitors and falling margins adds up to a gargantuan task. No matter how good management is, you can’t push water uphill for long.
Looking forward, the economy has to recover at some point. Those cyclically challenged retailers know that demand will strengthen eventually and they just have to sit it out. But the structurally disadvantaged retailers -
victims of the internet - have a less certain future. No one knows how big a share of each different product category the internet retailers will acquire. One thing, however, is for certain. The impact of the internet will only grow. The cuckoo is in the nest and it isn’t leaving.
So where’s that good news again? Well, wage inflation accelerated by 0.5% in the last figures. This apparently is due to ‘bonuses in the finance and business services sector’. Yes, it’s those bankers’ bonuses, without which we would lose these world class executives to other grateful nations. But surely they can’t be the ones buying all those M&S ready meals?
Simon Laffin independent retail adviser and non-executive director