Marks And Spendless

Robert Peston has had a good look at Marks & Spencer (MKS.L) today. Many other commentators are having a look at them too with radio programs devoted to them. A big British company with a big profile and a bit of “The People’s Retailer” about them, invites plenty of discussion. Lots and lots of people chiming in with where M+S has gone wrong..over priced, weak quality, frumpy fashions, poor service, failure to attract a young audience, lost their USP, too few checkouts etc. Well, maybe. The fashion was certainly not good enough as those fashion figures show.

M+S were first to be hit as sales slowed. Nothing new there. High end retailers are always hit first…People cut luxuries and curb their more expensive and extravagant habits early. We mentioned the churn effect of shoppers dropping down a brand back in April. M+S is cutting 1200 jobs, but more importantly, axing 27 stores, mostly their Simply Food shops. Clothing took the biggest whack 6.5% down compared to food 1.1% down. The fact they are closing stand alone Food Stores demonstrates the thinking in the boardroom that food sales will decline further in 2009. Some are delighted that its just 1200-1500 jobs out of some 75,000,just 1.5%, hinting that the worst is over and retailers are now safe, having survived Christmas. Next and Debenhams better than expected figures boosted their share price. The bad times are over?

That should be a wildly optimistic view. The effects of the economic crisis didn’t really take hold until October. Earlier annual trading helped keep profits up. There is worse to come. As Peston again mentioned yesterday, it will be levels of debt and access to credit that is important in surviving 2009. Some won’t even make the journey to the Rapids of the sterling devaluation and the increase in online sales that is waiting for the summer survivors.

M+S is taking the first necessary steps to reduce debt, lower costs, cut the wage bill, chop waste and generally prepare for the dangers ahead. They won’t hesitate to take further, more aggressive actions in the future. Expect more closures and more job cuts later on. After all no boardroom wants to do a Woolworths..

Posted in Categories: Australia, Contributor, External Research, Retail, Stocks, UK.

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