M&S must hope Ocado will turn its food problems into trifles

Shareholders in Marks & Spencer might be forgiven for starting this week with a sense of scepticism. The stalwart of the British high street is set to announce its full-year results on Thursday, and expectations are already low.

The past decade has seen a number of attempts to revive the fortunes of the chain but problems persist – an ageing customer base, expensive food halls and confusing promotions among them, according to chief executive Steve Rowe.

Last November, Rowe said management was leaving “no stone unturned” in overhauling the company, but investors were warned that there would be little change in the way that sales were heading for the rest of the year, amid dropping revenues from clothes and food.

It was little surprise, then, when weak trading was reported in stores over Christmas, although online sales proved more positive. Rowe said that there had been “difficult market conditions” but that the company had remained steady – although November was described as having been “very challenging”.

In February, Marks & Spencer announced a £1.5bn deal with the online delivery company Ocado that will bring M&S ready meals and other food to internet shoppers. Trading is expected to begin next year in the joint venture once Ocado’s deal to supply Waitrose products expires.

That announcement was not greeted with enthusiasm, however, as investors and analysts voiced concerns that the company had overpaid for access to Ocado’s delivery network and technology. The resulting drop in the share price wiped more than £550m off the market value of Marks & Spencer, although Rowe rejected suggestions that they had overpaid.

READ  Nike names new chief sustainability officer

The partnership with Ocado was a way to bring its food to the consumer, he said. While the average M&S shopper spends £13 on each shop, the average shopping bill is more than £100 at Ocado. Analysts were not hopeful, with one comparing the deal to an M&S ready meal – expensive and not very good for you, but quick and convenient.

In advance of this week’s announcement, analysts at UBS said Marks & Spencer was likely to be a better proposition in the coming years thanks to the online platform – although it warned there were “plenty of moving parts” in the new business model.

However, the company’s apparel market looks to be under pressure. This was illustrated back in November at the half-year results, when it emerged clothing sales at stores open for more than a year had fallen 1.1%. The problem has been exacerbated by poor stock levels on popular styles: M&S hired the TV presenter Holly Willoughby to choose her clothing “must-haves” for the season but some of the outfits she picked, such as a £49.50 leopard-print dress, sold out in several sizes within hours.

Investors will find out this week whether Rowe’s claim that management are “going bloody fast” at scrutinising and changing the various parts of the company is really true.



Please enter your comment!
Please enter your name here