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M&S in credit crunch crisis
Jonathan Prynn2 Jul 2008
Sales at Marks & Spencer have slumped five per cent, the company said today.
The high street giant this morning issued a dire warning to the City that sent its shares plunging by 68p to 250p - a fall of 22 per cent.
The retailer, which trades on its high quality but expensive food, has been badly hit by the credit crunch which means customers have less to spend.
The company said its head of food Steven Esom, recruited from Waitrose last year, has quit in a management reshuffle.
In a statement to shareholders, M&S said: "Consumer confidence levels have deteriorated markedly and market conditions have become more challenging."
Chairman Sir Stuart Rose admitted that trading conditions are the worst since the early Nineties.
"Our customers are hurting," he said. "Their pockets are being squeezed."
Sir Stuart said he has never witnessed "such a sharp and continuous slowdown" in his entire career in retailing.
He added: "It's a bit like being on a motorway. You are going too fast and you suddenly realise someone has dabbed the brakes on."
It is a remarkable fall from grace for M&S, which little more than a month ago unveiled profits of more than £1 billion, their highest level for a decade.
Today analysts were scrambling to slash their profit forecasts in the light of the sales warning.
Overall, M&S UK sales were down 5.3 per cent, with clothing and other " general merchandise" falling 6.2 per cent and food by 4.5 per cent.
International sales are 24.5 per cent higher, helping to boost total group sales by 1.3 per cent.
Sir Stuart claimed M&S was not losing market share to rivals in clothing, merely that the whole market is in disarray. "We are holding market share. The pot is shrinking," he said.
But in food he admitted "pressure on consumer spending and increased competitor pricing and promotional activity, coupled with changes in consumer buying patterns, have resulted in a significantly weaker performance".
M&S has positioned itself as the place to shop for top of the range food in recent years. But hard-pressed consumers are flocking to the bargain offers at the big supermarkets and even relatively well-off shoppers are experimenting with Lidl and Aldi for the first time.
Both have made strong efforts to appeal more to middle class shoppers.
Sir Stuart said: "Four years ago M&S was a weak business in a strong market. Today we are a strong business in a weak market. Our work to reposition the business in terms of product and values, service and store environment, coupled with our strong balance sheet and cash flows, places us well for the short term while enabling us to continue to invest for the future."
M&S has also been hard hit by the food price war launched by rivals such Asda and Tesco. Asda last month launched a range of 50p staples. It is also being squeezed by Waitrose which is doing well.
M&S has been trying to respond with its own range of basic ingredients for so called "scratch cooking" from home, one of the strong current trends in food retailing.
It is also testing an "eat for a tenner" promotion but the efforts have been seen as too little, too late.
From Sainsbury's to Waitrose fall guy
Steve Esom claims to have retailing in his blood. His Scottish grandfather ran a string of confectioners and restaurants in north London.
Starting out as an assistant at Sainsbury's in Essex during weekends and holidays from his Romford private school, Esom became a graduate trainee, going on to become personal assistant to John Sainsbury, then head of the supermarkets group. In 1993, aged 33, Esom joined Ladbrokes thinking his career would move faster outside retailing.
He then had a brief stint in the hotels sector. Two years later he was offered the job of buying director at Waitrose and was appointed managing director six years later.
He helped it become the first supermarket chain to spearhead organic produce. Esom joined M&S as director of food after missing out on the chairmanship of Waitrose's parent company, the John Lewis Partnership.
Reader views (2)
I agree with Ian. I now only shop at M&S if I happen to be carrying a plastic bag in my pocket at the time. Otherwise I continue 200 yards further down the road to Waitrose. Consumers have a choice and many, myself included, will choose not to be "punished" by a retailer which attempts to impose its own dubious environmental policies on them.
- Andy, London, 16/11/2008 11:13
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As a life long M&S customer I am boycotting the store over their ridiculous stance on charging for plastic bags. It is noticeable that other retailers are offering a 10p donation to charity if you do not take a plastic bag. If M&S really want to support the environment they could take a similar approach, in reality this is M&S cutting costs but trying to play the environmental card to detract attention from what is in reality a reduction in service.
- Ian, London, 16/11/2008 10:13
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