MARKS & Spencer today warned of a “gathering storm” with the UK predicted to tip into a bleak recession early next year.
The bellwether retailer reported a 24% fall in profits for the half-year to £205 million, partly due to troubles at its online venture with Ocado and a hit from pulling out of Russia.
M&S is most concerned about what happens in 2024, with analysts predicting that consumers who decide to enjoy themselves now will inevitably have to cut back later.
Melissa Minkow at digital consultancy, CI&T said: “When it comes to Christmas spending, comfort buys of sentimental or traditional items, such as M&S’s Colin the Caterpillar cake with its Christmas makeover will likely be on shopping lists this year and the retailer may benefit from this type of behaviour. But a feel-good factor splurge here will mean economies will have to be made elsewhere, with cutbacks on the weekly food bill, a move to discount stores or a make do and mend mentality.”
M&S chairman Archie Norman made the same point, talking of a “consumer crunch period”. “We all of us have got to run faster up the down escalator”, he told investors.
M&S shares tumbled more than 6% to 110p, which leaves the once queen of the high street valued at £2.1 billion. In contrast, JD Sports is valued at £5.5 billion.
John Moore, senior investment manager at RBC Brewin Dolphin, said: “M&S has a seen a decline in profits, but the effects of the economic downturn are yet to really show themselves in the company’s numbers.”
While some expect M&S to be hit hard by customers trading down, the store might benefit from the same effect, as people buy M&S ready meals rather than go to a restaurant, for example.
M&S also claims to have a demographic advantage, with a high number of its regular customers either well paid or retired on decent pensions.
The company said: "Whilst we are therefore planning on a material contraction in market demand, the M&S customer may prove more resilient than some market commentators assume.”
John Coldham, retail partner at law firm Gowling WLG, said:
"M&S is undergoing a significant turnaround as the business restructures its operations. This has consequently impacted on profits, but the retailer is putting itself on solid ground for moving forward.
"It is expanding its Simply Food stores which have continued to experience market share growth over the past 12 months, and has acquired its long-term food logistics partner to take full control of its food supply chain.”
Revenue in the six months to October rose 8.5% to £5.5 billion, with clothing and home sales doing well. Exiting the Russian arm will hit full year profits.
