- Marks & Spencer and Primark both disappoint with festive clothing sales
- Profit warning from Primark parent Associated British Foods
- M&S still reeling from cyber-attack disruption
- Primark’s non-UK European operations experience big decline
Dan Coatsworth, head of markets at AJ Bell, comments:
“Marks & Spencer has gone back to the old days where strong food sales helped to offset a weak showing from its clothing business. That’s going to disappoint a lot of people as the past few years suggested that M&S had finally cracked the right formula to look smart with clothing.
“Last year’s cyber-attack derailed the business, leaving gaps on its store shelves and stopping online sales for many months. During that period, rivals including Next seized the opportunity to lure in M&S’s clothing customers. Fears that some of those customers wouldn’t come back now seem to be a reality.
“The clothing arm had a poor festive period, and it was telling that M&S held a bigger than usual sale to help clear stock. It didn’t help that high street footfall was weak in general, meaning that M&S missed on valuable passing trade which typically helps to keep the tills ringing.
“Next has long been a powerhouse in good quality, affordable clothing and its decision to sell third party products has given customers greater choice. It’s a model that’s being copied by rivals including M&S, but Next seems to have the edge. That has made M&S’s life much harder, and it must up its game with producing clothes that people are keen to wear, as well as ensuring it has everyday essentials that don’t fall apart after a few wears.
“M&S has come a long way in recent years with improving style, but this is a highly competitive market and fashions quickly change. M&S must stay on top and make sure it is a trailblazer, not lagging at the back of the pack.
“It’s lucky that M&S can lean on its food arm when other parts of its business are dragging their heels. People often spend a little bit more at Christmas and they know what they’re getting with M&S food – good quality at a higher price point, but not an exorbitant one. It’s a little luxury that many are happy to indulge in. Importantly for M&S, it has a broader food range that also includes more value-led lines, meaning it is increasingly the go-to choice for weekly shops, and that means the business is filling its belly.”
PRIMARK
“Many people are loathed to spend a lot of money. This is understandable given the jobs market is fragile. If someone is worried about job security, the last thing they will do is go on a spending spree.
“Opting for cheaper clothes is a natural decision in this environment, and Primark is the go-to name on the high street for lower priced wares.
“Marks & Spencer and Card Factory have both recently bemoaned UK high street conditions, so one might have expected Primark to deliver a Grinch of a festive update for its homeland territory. Fortunately, its UK stores did well, particularly with womenswear.
“Sadly, Primark’s mainland European stores had a terrible time, with a large decline in sales. Even the US stores were volatile. When all the different territories are factored in, Primark has disappointed big time and forced management to slash prices to rock bottom levels to clear inventories and stop its stores from gathering dust. It’s a far cry from the halcyon days where Primark could do no wrong.
“It puts parent company Associated British Foods in a difficult situation. Normally it would have other parts of its group to pick up the slack, but the food arm hasn’t been doing that well. That’s led to a nasty profit warning for the group.”
