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Fresh food gives M&S CEO Steve Rowe indigestion

M&S FoodUK retailer Marks & Spencer (M&S) has reported improvements in its troubled apparel division.

But now food – the core of its new CEO’s turnaround plan – is hitting headwinds.

Quarterly sales data to July 1 showed a 1.2 per cent decline in sales of clothing and home furnishings, but that figure hides a significant improvement beneath the surface: sales of full-priced clothing and home furnishings rose a solid 7 per cent, suggesting the company is no longer relying on discounting and close-out sales to prop up turnover.

Full-price sales have a higher gross margin, so while sales are marginally down overall, M&S’s apparel business is clearly in a better place now than 12 months earlier. Bloomberg columnist Andrea Felsted described the result as “one step forward, two steps back” for M&S CEO Steve Rowe.

“Just when there are signs of improvement in the retailer’s troubled clothing division, the chichi food arm starts to wobble.”

She said Rowe is aiming for a lower, but more stable pricing model, which saw the retailer axe 27 promotions during the quarter. A clearance sale in April 2016 was not repeated this year, explaining the dip in same-store sales.

“That’s the right strategy, and should help M&S meet its expectations of a broadly steady clothing and home furnishings gross margin, even if it is weighing on the top line.

“What’s more worrying is the slowdown in food, where growth has been a bright spot over the past few years as clothing has stuttered. Same-store food sales were down by 0.1 per cent, after a boost from Easter.”

Rowe attributed the drop to the roll-out of Simply Food outlets which are cannibalising sales of nearby stores, affecting same-store sales figures yet still adding volume to the business. Some 250 new Simply Food outlets are scheduled to open by 2020.

Felsted said there is no need for drastic intervention yet. “But as incomes are squeezed by inflation that’s ahead of wage growth, there’s a danger that M&S customers start to trade down. And this time round, not only the mainstream supermarkets but the German discounters Aldi Stores and Lidl have upped their game. Although food is less profitable than clothing, M&S has pinned its hopes on grocery growth, so any stumble here is a concern.

“Rowe needs to demonstrate that his recovery isn’t about to be undone by a posh food fight.”

This article first appeared on sister site Inside Retail Asia.

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