Much negative press has been made this week over Marks and Spencer’s (M&S) release of their full year results. The retailer announced their profits dipped 3.9% in the year, but looking into their figures, there are clear signals of hope for the retailer and I am optimistic about their performance going into the future.
This year’s underlying profit before tax has come in much lower than its late nineties heydays at around £623m. However, group sales were up 2.7% driven clearly by good performances in its food, international and multi-channel businesses.
General Merchandise (GM): Total UK Sales 0.0%, LFL UK Sales -1.4%
M&S is in an extremely tough market and has had negative GM LFL sales for the last three years. The retailer has come under attack from value retailers like Primark but also from more fashion forward fleet-of-foot retailers like Zara and Next over the last decade. The majority of M&S’s sales will come through GM, so clearly there needs to be a lot of work done here. Discounting has buoyed sales in some instances but essentially their fashion product is not that exciting. On a quick straw poll of female colleagues and friends, there was a unanimous reaction from the key 18-35 age group saying the retailer was good for basics (underwear, jumpers, work essentials etc) and not much else from a GM perspective.
Food (Convenience): Total UK Sales 4.2%, LFL UK Sales 1.7%
M&S’s food division is trading very well, in a highly competitive market; in fact it has seen LFL sales growth for the last five consecutive years. M&S have secured stores in key locations including high streets and transport termini and this is supporting their growth. The retailer has also been able to successfully focus on developing top-quality ranges that are competitively priced, including their ‘Dine in for Two’ range.
International: Total Sales 6.2%
In the last few years, the retailer has successfully re-launched across the English Channel, total sales internationally have been positive for the last two years. Our ‘Destination Europe’ report highlights which international retailers have been recently active in their expansion into Europe’s key cities; M&S is most certainly included within this group. The brand in Europe remains strong and the roll out of new stores, franchise or otherwise, in France, the Netherlands, CEE and the Middle East has continued at a good pace and the sales have followed. Whilst international expansion presents many opportunities, great risk and uncertainty remains for retailers.
Multi-Channel: Total Sales 22.8%
Much needed investment in M&S.com has delivered a strong performance in 2013/14, outperforming the market with sales up 22.8% and visits to the site up by 9%. Like many of its competitors, it has seen tremendous growth in this area for the last 5 years. A key component to the retailer’s success in the multi-channel world is its 700 UK store network. The retailer has been able to use the stores to leverage the consumer trend to click-and-collect effectively; with 55% of multi-channel orders now collected in store or ordered in-store for home delivery.
When you look at M&S’s trading statement, you have to appreciate the scale of the investment required to transform the business as well as the retailer’s recent history. Clearly work needs to be done on the retailer’s staple ‘women’s fashion’ but investment internationally, online and in the food offer is already transforming into positive sales for these businesses.
Jonathan Bayfield is an Analyst in JLL’s European Retail Research. He works with his investment and agency colleagues advising international investors and occupiers on their retail real estate strategy across Europe.