Marks and Spencer’s full-year results included an admission from the retailer it had cut its sales forecast and lowered the amount it will spend on capex. However, while those announcements attracted the broader business headlines, the food sector should note the solid performance of the UK firm’s grocery business.
The headlines that greeted Marks and Spencer’s annual results this week focused on the cuts the UK retailer made to its sales forecasts and its decision to lower its planned spending on capital expenditure.
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For the nationals, they were the obvious headlines. M&S is often seen as a bellwhether for the wider UK retail sector and its revised sales targets, as well as its decision to scale back capex, were seen as tangible signs of how difficult trading is in the country.
In November last year, M&S chief executive Bolland set a target for the retailer to grow its annual sales by GBP1.5-2.5bn over the following three years. However, Bolland now sees sales increasing by GBP1.1-1.7bn. The Dutchman also said M&S would to spend GBP200m less on its domestic retail estate than it forecast. In the next 12 months, the retailer said it will increase its space by 3% and then by 2.5% the year after.
Bolland, pointing to the worsening conditions in the UK economy since he set those forecasts in November 2010, insisted M&S’s strategy was working. “We are falling short not because our UK stores aren’t performing well. Our stores are showing growth but the economy is not allowing us to grow much faster. This brings realism into the numbers,” he said. “It’s still a big challenge [but] we believe we need to keep that ambition alive because it has been mindset-changing for the company.”
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However, for those in the food industry, while retail watchers are questioning the performance of M&S’s non-food business, it is important to remember the retailer’s grocery arm is ticking over nicely.
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By GlobalDataReporting its results on Tuesday (22 May), M&S said its food business had “performed strongly in a tough market” in the year to the end of March. Sales were up 3.9% to GBP4.7bn on the back of a 2.1% increase in like-for-like sales, solid numbers from what is seen as an upmarket food retailer.
That’s not to say M&S has not faced questions over its strategy in food. When Bolland took charge of the retailer, he said he wanted to position the company as a specialist and he also increased the number of SKUs by around 1,000 products. However, the recent launch of Simply M&S, a cut-price line of “everyday” products has prompted accusations the retailer is positioning itself more closely to its rivals.
Bolland insisted the launch echoed the plans he announced last November, which said M&S would offer “specialness” and a “fuller shop”. He said: “What we felt was that we needed to be clearer of what our offer was for a fuller shop.”
However, the M&S chief added the retailer’s record of innovation set it apart from its rivals. “We are bringing more innovation, double if not triple the innovation of anyone else in the market,” he said. M&S launched 1,900 products in its last year and is set to introduce a similar number in the next 12 months.
Looking to the year ahead, the launch of Simply M&S is timely. Rival Waitrose has tried to highlight its value credentials in recent weeks with the extension of a scheme that compares its prices with Tesco. By launching its everyday range, the retailer is hoping its shoppers will add a few more items to their M&S baskets instead of going elsewhere. Or, perhaps, that the occasional M&S shopper looking for a treat will also top up their basket with staple products they usually buy at other retailers. Turning the dial up on its value credentials, while maintaining its rate of innovation, is a wise strategy for the retailer.
“The investment in underlining value through the Simply M&S sub-brand and campaign will, in our opinion, help drive footfall,” Neil Saunders, MD at retail analysts Conlumino, said. “M&S is pushing value without undermining quality and, as we have seen from other players like Waitrose, this is currently a winning strategy in the food market.”
Competition is fierce in the UK food retail sector. While Waitrose looks to underline the value it can offer consumers, Tesco is upping investment across its business and Sainsbury’s has had a strong 12 months. M&S cannot rest on its laurels but, behind the broader headlines, its food halls are proving the more resilient side of its business.
