How retail giant Marks & Spencer achieved a ‘record’ Christmas – and where there’s still room for improvement

M&S has celebrated a Christmas trading period when “sales records were broken across the business” as its food and general merchandise divisions both beat City consensus forecasts.

Strategic priorities drove food growth…

Marks & Spencer reported that “quality, innovation and trusted value translated into strong sales and market share growth” at its food arm, which has been a star performer for some time.

The three strategic pillars are longstanding but their execution was key to seasonal success.

Quality and innovation were evident in the launch of 500 new or improved food lines, such as double-wrapped pigs in blankets, and sales of such items were ahead 14% year on year. On the value front, sales of the Remarksable value range were also up 14%, while the retailer’s programme to enable customers to do a bigger food shop powered sales in core categories such as meat, up by 10%.

…but store constrictions and supply chain weaknesses were identified

M&S flagged issues such as the ability of smaller stores to cope with demand and “stock flow challenges” which “led to slightly higher seasonal markdown as we reset for the new year”.

Chief executive Stuart Machin said the retailer’s store renewal project would help address the experience in some smaller branches. He said: “I was in stores during the Christmas week. You couldn’t get another delivery in and you couldn’t get down the aisles. So there was one particular issue, which I call growing pains volume. The good news for us is accelerating investing in our store rotation programme, because our renewal stores in food outperformed expectations. We’re never going to get the growth in small stores like in renewal stores.”

The retailer is also working on its food supply chain and how it moves smoothly between trading phases. Machin said: “There were definitely lessons to learn. Our stock allocation and how we try and smooth out the stock never quite works and it was a bit lumpy and inconsistent. Again, even more reason to invest in our network, which is critically important over these next five-plus years in our food business.”

Clothing beat a depressed market…

Food and delivery on the promise of the enduring values of “style, quality and value” allowed M&S to increase sales and market share in what it described as a “declining market” overall – evident in sales in the core product areas of men’s and womenswear of 10% and 6% respectively.

Hero categories such as denim and knitwear did particularly well. Sales of women’s jeans for instance rose 20% while an emphasis on style helped lift women’s partywear sales 7%.

…but keener range management and rethink on gifting is on the agenda

Machin said that alongside continuing to hold true core values, there is an opportunity to “marry that with a focus on turning stock faster, further reducing options and optimising store range and space”.

He said: “In clothing we’ve made good progress over the last few years reducing stock into sale, etc. I want us to be more ambitious on that – reducing our options even further, even less stock into sale.

“One thing we did learn is the first few drops of newness were selling very well on Christmas Eve, as they were the first week into the new year. There’s even more opportunities to drive newness.”

The retailer will review its approach to gifting. Machin said: “We’ve got to rethink gifting in our home category. I don’t think there is a business called gifting anymore. I think what we should do is look at everything we sell in clothing, home and beauty at Christmas, focus on the core, but realise some of these things are gifts. We do go to some effort creating gift shops and that’s something we’re reviewing.”

Value focus and job-type prioritisation in challenging conditions

While the retail environment remains tough, consumer sentiment uncertain and retailers face punishing cost rises, Machin says M&S will focus on factors it can influence, helped by its cost-out programme.

Machin said: “The overall sentiment from our customers does remain flat and that’s why I talk about what’s in our control.

“What we’re very focused on is the need for value. We’ve inflated behind the market now for the last two years, and that’s what we intend to do this year.”

Despite rising employment costs, he does not see “big job losses” at M&S.

He said: “Does it make us look at how we recruit? Of course it does. We’re investing heavily in big programmes for the future of the company. We’re investing heavily in the supply chain, store rotation, and digital technology to grow our online business. So we’ve got to be focused on that, and that means when we do recruit, to be diligent on where we are recruiting and making sure we’re recruiting in the right areas.”

The City seemed to share the view that M&S’ seasonal report revealed lots done but plenty still to do.

Investec analyst Kate Calvert said: “Expectations of an upgrade were high coming into this trading update, and while one has not been delivered, there is clearly strong momentum in the business and opportunities where execution could have gone better. Sales momentum is such, with plenty of self-help to go after, that we believe news flow will remain positive over the next 12 months.”