Marks and Spencer: Is there a post-Covid future for the retailing giant?
ITV News Business and Economics Editor Joel Hills reports on the historic brand tumbling to a £201.2 million pre-tax loss for the year to March 27
From “never the same again” to “a year like no other” , Marks & Spencer pronouncements increasingly sound like the titles to Bond films. They certainly don’t lack drama. The twin shocks of lockdown - which triggered a 31.5% collapse in clothing sales - and Brexit - which has cost the business £40 million and counting - combined to push M&S to a statutory loss before tax of £201.2 million last year. Were it not for £306.1 million of government support (most of it in the form of business rates and furlough support), the financial losses and the number of jobs losses (7,000 were announced last August) would have been even greater. Store sales slumped during the pandemic, offset by a surge in digital sales.
“The movement online is greater than we foresaw,” explains the chief executive, Steve Rowe. Rowe believes the shift in spending habits will not snap back when something like normal life resumes. In future, his guess is “40-50%” of the company’s sales will be through the website. M&S is resizing its store estate accordingly. The company had 255 “full-line” (clothing and food) stores across the UK as of the end of March. It plans to shrink that to 180 over the next 10 years. 110 stores in “long-term decline” will close, 35 of these will relocate while 45 morph into Simply Food outlets. M&S hasn’t said which communities or how many of its 70,000 employees will be impacted. Steve Rowe doesn’t do downbeat and, this morning, he was keen to highlight reasons to be cheerful. And there are plenty: M&S’s balance sheet looks in better shape, the digital experience has improved, the joint venture with Ocado - announced in 2019 - is starting to look inspired. M&S sees a “clear path to a transformed business”. Investors struggle to. The company’s shares are changing hands for 163p this morning. That’s a vast improvement on the low of 89p last October but well below the 400p level when Rowe was announced as CEO in January 2016.
M&S’s stock market values sits a little north of £3 billion. The prospects of JD Sports (£9 billion), Next (£10 billion) and Ocado Group (£15 billion) are considered to be brighter. Then there’s Amazon (£1160 billion - yes, really) to whom the pandemic has been extremely kind.
Amazon’s UK sales are double that of M&S but its business rates bill (an estimated £71.5 million, according to Altus Group) is less than half of the £178 million M&S pays annually. This is partly because warehouse space is much less heavily taxed than shop space - an unfairness Rowe wants the government to urgently address. As it stands, business rates relief ends in July. Meanwhile M&S continues to wrestle with the impact of Brexit. Tariff costs haven’t been as bad as feared but the paperwork and administrative costs of supplying fresh and chilled food to its operations in the EU - in Ireland and Northern Ireland in particular - have been “horrific” and are ongoing. Rowe confirmed that much of the £42- £47 million of Brexit costs, M&S expects to absorb this year will be recurrent. These are not “teething-problems.”