Inflation halts M&S recovery as buyers choose cheaper options

The quiet aisles of a Marks & Spencer store in the City of London illustrate the challenges faced by a retailer trying to revive its efficiency since the turn of the millennium.

n Tuesday afternoon, the large ground floor was packed with colorful women’s fashion and accessories.

There was no shortage of shoes, from office-suitable black heels for £45 (€52) to beach-friendly flip-flops, which retail for nearly £13.

In the basement “Simply Food” hall, shoppers could choose from ginger cayenne pepper syrup, Vietnamese-style pork belly, wild Canadian scallops, and gooseberry and elderflower yoghurt.

The only thing that was noticeably short was shoppers, with only a dozen or so perusing the merchandise on the first floor, and there wasn’t a line at the checkout.

“M&S is nice, but I don’t come here often because the prices are so high,” said Mark Anthoneil, a London bus driver who stopped by the store for a sandwich and his favorite sweets.

“Every now and then I come in because they have nice things.”

Marks & Spencer warned on Wednesday that profits will not rise as sales growth is held back by the UK cost-of-living crisis and other factors.

Although last year produced the fastest revenue growth in at least a decade and business has been strong so far this year, the dismal outlook poses a challenge for new chief executive officer Stuart Machin and co-CEO Katie Bickerstaffe as they succeed Steve line up.

The stock was little changed in London, having lost around two-thirds of its value under the outgoing CEO.

“People talked about our store having an albatross around our necks,” the CEO said on a call with reporters.

“In fact, it gives us a platform for a really strong omnichannel business, and on the contrary, it will be one of the strengths of the new digital business that the team will deliver over the next few years.”

As inflation continues to rise, shoppers have to choose between the premium offerings from M&S and the cheaper items, which are still more expensive than those from budget retailer Primark.

In April, M&S announced lower prices for its Remarksable Value range, including bread, milk and ground beef, to focus the customer on a full-basket store and not just eye-catching items.

Amid the cost of living, Mr Anthoneil said he will not do his main weekly grocery shopping at the store but will limit shopping to the items he really likes.

Marks & Spencer’s grocery store, which sits alongside the clothing and home appliances business in the retailer’s portfolio, fared better. Specializing in ready meals and sandwiches, the company weathered the pandemic and is now benefiting from return-to-office trends.

“I think they’re going to try to turn it into a predominantly grocery store with a smaller clothing range next to it,” said Tony Shiret, an analyst at Panmure Gordon.

But the grocery store also faces challenges. Ocado warned on Wednesday that growth at its home delivery joint venture with M&S will be below expectations this year as the cost-of-living crisis hits.

As shoppers cut back on online shopping and return to stores, the problem for M&S remains that too few of these shoppers choose its stores.