The next two months are supposed to be the most lucrative time of the year for the high street, but a grisly update from Marks & Spencer will this week provide a grim reality check as the pandemic sets up nightmarish trading conditions for the golden quarter.
Analysts expect M&S to have made a loss of about £60m in the first six months of its financial year because of the huge sales hit suffered by its clothing arm during the three-month spring lockdown. This time last year, the UK’s biggest clothing retailer was reporting profits of £176m.
Close followers of M&S are no stranger to disappointment when it comes to its ailing clothing business. But thanks to the health crisis, the declines are of a different magnitude, with the company expected to report a precipitous 40% drop in clothing and home sales over the six months to 26 September when it updates investors on Wednesday.
Sales at M&S’s upmarket food halls are expected to be flat, with the Covid drag on stores in city centres and transport hubs – where trade has been hit by the shift to working from home – offset by brisker sales in suburban locations. M&S’s food business has also been buoyed by its recent tie-up with online grocer Ocado, which means it will be able to profit from the clamour for online grocery deliveries this Christmas.
Business is dealing with a high level of uncertainty as 'every other day another county of England is going into tier 3'
Clive Black, analyst
But M&S was playing catch-up before coronavirus struck. It lost its place in the FTSE 100 in 2019, and the City was calling for a more dramatic reinvention of the 136-year-old chain, which they complain is saddled with creaking infrastructure and too many ageing stores. They are now getting what they wanted from the chief executive and chairman double-act of Steve Rowe and Archie Norman, who most recently announced that they were cutting 7,000 jobs.
Clive Black, analyst at Shore Capital, which is M&S’s house broker, said the pandemic had forced the company to make tough decisions and address shortcomings such as its misfiring website: “I think necessity is the mother of invention here and M&S is having to take decisions at a much faster pace than it wanted to.”
But, he added, ever-tightening restrictions made it harder to predict the likely level of profitability at M&S in the rest of the financial year. Business leaders had hoped the coronavirus situation would have stabilised by now but are instead dealing with a high level of uncertainty as “every other day another county of England is going into tier 3”.
The financial toll the pandemic has taken on the high street is underlined by the impact it has had on the finances of even the strongest retail brands. On Tuesday, M&S’s arch-rival Primark is expected to report annual profits of about £350m, which will be less than half last year’s £913m haul. The budget clothing chain does not sell online and – like M&S – desperately needs its customers to feel safe about venturing out to high streets and shopping malls this Christmas.
Richard Hyman, an independent retail analyst, said public anxiety about growing coronavirus restrictions was already having an impact on clothing sales, so all bets for Christmas were off. “This is not normality. This is a wholly exceptional period and it is about navigating your way through it. Pre-Covid, Primark was one of the best retailers we have – and it still is.”