M&S sales fall flat as it fails to carve a fashion identity

THE RETAILER famous for £10 meals and the Per Una brand has stumbled. In this age of austerity, it may come as little surprise that a firm like M&S is falling short. But in reporting its weakest quarterly figures for seven years, its challenges run far deeper.

Although M&S’s food sales grew by 2.9 per cent, like-for-like sales were up just 0.6 per cent. This is modest for two reasons. Firstly, the British Retail Consortium reported retail sales growth across the sector of 1.4 per cent in June. Secondly, M&S relied heavily on Jubilee-related sales to reach this figure. Without the Jubilee, like-for-like sales growth could have been negative.

The weather and the economy are certainly mitigating factors. The M&S product mix lends itself well to warmer weather and fatter wallets. However, Waitrose has shown that it is possible to grow market share as consumers top-up discounted staples with premium items.

Despite the weather, the short-term outlook for food is positive. Jubilee sales should segue into the Olympics, when demand will be bolstered by tourists. But more questions will be raised when the UK runs out of events to bolster consumer spending.

The quarterly 6.8 per cent slump in non-food sales is M&S’s worst since 2005. Mid-market retailers like Inditex, owner of Zara, and H&M continue to register growth, and the likes of Asos have carved out a share in the young fashion market. M&S has not.

Not only have expensive campaigns failed to bring in younger shoppers, but the brand is becoming more synonymous with food than clothing. Rationalisation of its clothing range has been repeatedly suggested – yesterday’s appointment of Belinda Earl as the firm’s new style director signals yet another fresh approach.

Perhaps opportunities abroad will yield better results for M&S. The retailer singled out strong trading in China and India as sources of future growth, with plans to double the number of stores in China this year. Still, the company’s international division saw sales rise by only 0.9 per cent.

With limited exposure to the Eurozone, and a presence in markets like Indonesia, Malaysia, Thailand and the Philippines, as well as China and India, M&S’s international sales growth of less than 1 per cent is disappointing.

And shareholders have other reasons to be unhappy. Since Marc Bolland took over as chief executive in May 2010, M&S’s shares have fallen by around 12 per cent, underperforming rivals as well as the broader UK market. This has not stopped Bolland receiving some substantial and well-publicised performance related bonuses, however.

Nonetheless, few investors voted against Bolland’s reappointment at yesterday’s AGM. Similar patience will not be shown if trading continues to sag in future quarters.

For investors, the key yardstick for judging M&S’s performance is the 400p per-share bid made by Sir Philip Green in 2004. The company’s shares briefly traded above this level early in Bolland’s tenure, but since then they have mostly languished below it.
Jon Copestake is chief retail analyst at the Economist Intelligence Unit.