Despite a growth in food sales, Marks & Spencer saw its profits drop 21.2 % last year. The coronavirus crisis makes tough measures necessary, but also opens opportunities.
Fashion sales drop 75 %
Marks & Spencer’s financial year was negative all over the board (excluding food sales): fashion and ‘home’ sales dropped 6.2 % and pushed total turnover down by 1.9 % to 10.18 billion pounds (11.5 billion euros), while profit even dropped 21.2 % to 403 million pounds (450 million euros). The drop is sharper than what analysts were expecting: consensus was at least a profit of 415 million pounds.
Moreover, Covid-19 made bad results even worse: in the six weeks ending 9 May, fashion and ‘home’ sales dropped by 75 %, and this time food sales fell as well (by 8.8 %). This drop is despite the fact that most Marks & Spencer stores were allowed to remain open at the height of the coronavirus crisis, courtesy of the fact that they sell a lot of food as well.
500 million in costs cut
The financial implications of the Covid pandemic are tough: the chain says to have lost 52 million pounds in profit in march alone, having had to hay an additional 212.8 million pounds (240 million euros) in costs and stock write-offs. The current fashion overstock is worth 500 million pounds, most of which will be put back in the stores at the beginning of the spring of 2021 – at the cost of 157 million pounds in extra storage and write-offs.
CEO Steve Rowe still remains optimistic, however: “Last year’s results reflect a year of substantial progress and change he said, referring to his company acquiring online grocer Ocado. The “Covid-crisis trauma” has also caused the company to take action and preserve its future, trying to cut costs by as much as 500 million pounds in costs.
“Never the Same Again”
The company’s plans for the future were given the self-explanatory title “Never the Same Again”: “Whilst some customer habits will return to normal, others have changed forever“, Rowe told the BBC. The pandemie has pushed people to buying online, and has changed the make of physical stores as well. Rowe explains that people shop less often and less impulsively, choosing large quantity packages and frozen food (of which sales went up by three quarters).
The CEO thinks the consequences of this crisis will be continuing far beyond next year, urging him to focus on e-commerce and on food sales, which should grow to 75 % of turnover from at least half of the floor space in the stores. Social distancing and reduced consumer appetite will still prove very challenging, as will be the lower margins and fierce competition in the food category.