A day after rival chain Primark delivered LFL sales growth of 4.0%, Marks & Spencer UK reported its thirteenth consecutive quarter of declining General Merchandise sales in the UK. The 130-year-old high street fashion retailer, who also operates grocery stores under M&S Simply Food banner, reported a LFL sales decline of 0.7% during H1 2014 in the UK, which is likely to further fuel calls for CEO Marc Bolland’s exit.
Snapshot of the results:
Source: Marks & Spencer
Whilst the retailer has blamed adverse weather conditions for a below-par Q2 performance, Kantar Retail believes there are some fundamental issues that continue to plague the business.
- It’s supply chain is not flexible enough to quickly adapt to changing shopper/fashion trends or seasonal variations
- A focus on improving gross margin (up 150 basis points during H1 2014), through reduced promotions and increased efficiency is proving counterproductive with shoppers feeling the impact on prices and in-store service (greater incidence of out-of-stocks especially in stores outside the Greater London area)
- The newly revamped website still suffers from architectural issues, specifically around search and functionality, causing shopper angst. This has caused a 6.3% drop in sales during H1 2014.
Declining GM performance also means a greater reliance on M&S Simply Food, which grew LFL sales (1.0% during H1 2014) for the 20th consecutive quarter, and now accounts for approximately 55% of the retailer’s UK sales. Whilst the top four British grocers have the discounters (such as Aldi and Lidl) snapping at their heels, M&S Simply Food has managed to maintain positive LFL sales and improve gross margin (25 basis points). Kantar Retail believes there are two key reasons behind this:
- Although its considered premium in terms of pricing, M&S Simply Food has built a reputation of delivering high quality of products, thereby consistently servicing a niche market segment
- Consumption for tonight (near term consumption) accounts for roughly 39% of its shopping missions – which allows the retailer to charge a slightly premium price.
Marc Bolland and the executive team at M&S are trying to reinvigorate the business by streamlining the operational and commercial model, which has seen some early signs of promise. This includes the re-launch of its clothing range last year which was well received by the fashion industry. However, with a below-par sales and share price performance, the question remains as to how long Marc Bolland will continue to enjoy shareholder confidence, especially considering the following:
- He has already spent/invested £2.3 billion over the last 4 years to turnaround the business.
- Sales during the period have increased by £1 billion
- Profits before tax during that period have declined £156 million
- M&S’ share price is down 6.3% since the start of the year (down 35% in the last six months)