Follow us

Menu
PARTNER WITH USFREE NEWSLETTER
VISIT TheIndustry.beauty

Marks & Spencer warns over ‘gathering storm’ and further price hikes

TheIndustry.fashion
09 November 2022

Marks & Spencer has warned over a “gathering storm” ahead as it forecast a steep slump in customer demand next year and said more price hikes are on the way.

The retailer said while sales were so far proving resilient and customers are “determined” to spend over Christmas, trading will become much tougher in the new year as the cost-of-living crisis hits hard.

Shares in M&S fell 6% in morning trading on Wednesday as it forecast a “material contraction” in market demand over its next financial year. It predicted a raft of retailers will go bust as the pressures take their toll.

The chain said the M&S shopper is set to prove more resilient, while a recent overhaul at the group “may provide some insulation from the gathering storm”.

It has reined in price rises where it can, passing on price increases of around 8% across its food halls versus an 11% rise in its own costs.

But it lifted clothing and home prices by about 7% in the first half and is set to increase these further as the pound’s slump against the US dollar makes it more expensive for the group to buy in stock.

M&S said: “We expect market conditions to become more challenging in 2023-24. The combined impacts of the cost-of-living squeeze and the most marked rise in the cost of doing business for many years are creating pressure on margins industry-wide.

“All parts of the retail sector will be affected, and this will result in unviable capacity leaving the industry, creating opportunities for the leaner players who remain.”

The gloomy outlook came as it reported a 23.7% fall in underlying pre-tax profits to £205.5 million in the six months to 1 October as it saw double-digit inflation in food costs and suffered a £700,000 loss in its Ocado retail joint venture.

Profits were also knocked by the cost of higher property taxes after the end of business rates relief, as well as its exit from Russia.

M&S said like-for-like sales jumped 13.7% across its resurgent clothing and home division as its bounce-back gathers pace, while comparable sales lifted 3% across its food business.

But underlying earnings in the food division slumped to £71.8 million from £124 million a year earlier as costs weighed on the division.

M&S said it expects to post full-year pre-tax profits “similar” to the guidance it set out previously, with most analysts expecting a fall in underlying profits to £397 million against £523 million in 2021-22.

The company said trading in the first four weeks of its all-important second half was in line with its forecasts, with sales up 4.2% in clothing and home, 3% higher for food and 4.1% ahead in its international business.

CEO Stuart Machin said customers were prioritising Christmas spend, with a recent poll showing its shoppers have already bought around 30% of their festive gifts.

But he said “we are trying to brace ourselves” for a post-Christmas spending clampdown. “We’re very focused on the early part of next year, where some of these cost headwinds for households will hit,” he said.

It is looking to make savings of around £150 million in 2023-24 to offset soaring inflation and help it weather the tougher trading.

M&S recently said it is speeding up a major shake-up of its stores estate, which will result in the closure of 67 larger shops as part of long-term plans to axe 110 stores under a sweeping overhaul led by previous boss Steve Rowe.

Susannah Streeter at Hargreaves Lansdown said the restructuring was “showing great strides of progress”. “However, there are signs in the last four weeks that demand is weakening, as cost-of-living headwinds whip up and with costs set to stay elevated it’s clear the next year will be challenging,” she said.

Yesterday rival clothing retailer Primark promised it would not be increasing its prices before the AW23 season in order to help consumers through the cost of living crisis. George Weston, boss of its parent company AB Foods, said the move was the right thing to do for customers but would also put its rivals under pressure.

Free NewsletterVISIT TheIndustry.beauty
cross