Marks & Spencer’s food sales drop 0.9%

By Matt Atherton contact

- Last updated on GMT

M&S's food sales dropped 0.9% this quarter
M&S's food sales dropped 0.9% this quarter

Related tags: Like-for-like sales, Marketing

Food sales at Marks & Spencer (M&S) fell by 0.9%, on a like-for-like basis, in its first quarter, amid reports consumer confidence had fallen to its lowest level in 21 years following the UK’s Brexit vote.

M&S blamed the 0.9% drop mainly on the timing of the very early Easter holiday. Falling on March 27 this year, Easter Sunday will not fall in March again until 2024.

Despite the fall in like-for-like sales, M&S’s total sales in its Food division increased by 4%. Chief executive, Steve Rowe, said the results gave cause for optimism.

“Our food business continues to strongly outperform a deflationary market, with ​[like-for-like] sales slightly down when adjusted for Easter timing,” ​said Rowe.

‘A deflationary market’

The company said that it strongly outperformed the food market in its first quarter and, as a result, was continuing to lower prices. However, the lower prices had meant the company had reduced the number of its promotional events.

Rowe said: “We knew our actions would reduce total sales but we are seeing some encouraging early signs.”

M&S results – at a glance

  • Total sales up 4%
  • Like-for-like sales down 0.9%
  • 0.5% of like-for-like sales drop blamed on timing of Easter holiday

M&S’s Clothing and Home sales dropped 8.3% in the first quarter, with an 8.9% drop in like-for-like sales.

Shares in the company fell 1.2% to 290.6p on Thursday morning (July 7). The retailer’s shares have dropped 29% over the past three months.

Rowe said: “As highlighted in May, consumer confidence weakened in the run up to the EU Referendum.

“While it is too early to quantify the implications of Brexit, we are confident that our strategic priorities and the actions we are taking remain the right ones to deliver results for our customers and our business.”

Biggest drop in consumer confidence 

His assessment of weakening shopper confidence was supported by new research that revealed the biggest drop in consumer confidence for more than 20 years. 

A study of 2,000 consumers conducted by market research group GfK found 60% of respondents expected the general economic situation to worsen over the next 12 months.

One third of consumers expected prices to climb rapidly over the next year. 

Regional differences highlighted by the survey showed consumers in the north of England less confident than those in the south of England and Scotland.

GfK’s head of market dynamics Joe Staton said the grocery sector was one of a number likely to be hit by consumers’ falling confidence.

“Our analysis suggests than in the immediate aftermath of the referendum, sectors like travel, fashion and lifestyle, home, living, DIY and grocery and particularly vulnerable to consumers cutting back on discretionary spending,” Staton told BBC News.

Analysts view

​Group sales at M&S rose 1.3% in the first quarter of 2016/17, with its food division continuing to prop up the business combined with an improvement in its international business with sales up 6.1% in actual currency (+0.7% in constant currency). Steve Rowe has attributed its poor performance in clothing and home to a reduction in promotional activity, lower prices and moving its end of season summer sale back by two weeks to July 5, 2016.

Since January M&S has repriced approximately 1,000 lines to ensure it is offering shoppers greater value and remaining competitive. While this strategy, alongside limiting short term promotional activity, will start to resonate with shoppers and make them more confident about purchasing items at full price, it will take time to educate shoppers – particularly those that have deserted the retailer over the last five years. Moreover, lowering prices will become harder over the next 18 months as inflationary pressures will rise following Brexit. It will be difficult for M&S to absorb these costs and maintain its new price strategy, so we expect its price architecture to stretch higher so it can pass higher costs onto the shopper via its better and best proposition – especially since there will be little flexibility in the supply chain, with the retailer having already made cut backs, worked with suppliers to reduce prices and absorbed the rise in national living wage costs.

Related topics: Ambient foods

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