Value proposition

M&S boosts pre-Christmas value proposition despite falling profits

Marks & Spencer is stepping up efforts to boost top line growth by improving its value proposition this winter, despite falling profits in the first half of its financial year.

The retailer’s pre-tax profit fell 24% in the six months to October 1 from the same period last year, from £269.4m to £205.5m. The brand expects next year to be even “more difficult”.

Sales from its food business rose 5.6%, but operating profit fell from £124m to £71.8m. Gross margin was reduced by 110 basis points, which the retailer attributes to its “continued investment in quality and price”.

Investment in value over the period includes the relaunch of the “Remarkable” range of less expensive foods and the accompanying campaign at the start of the year, as well as an acceleration in the pace of innovation. Around 900 new products launched over the half-year, up 4% year-on-year.

“In food, investment in trust stock drove top-line growth, but near-term earnings were reduced,” said co-CEO Stuart Machin.

With Christmas festivities fast approaching, Machin told reporters on a call today (9 November) that M&S ​​customers tell the retailer they “want to protect Christmas”. Co-CEO Katie Bickerstaffe said customers have already purchased about 30% of their Christmas gifts.M&S Food reunites French and Saunders for Christmas ad

Around 30% of gifts on sale this Christmas are priced under £10, with 70% under £20. “Early sales indicate that we have good products at excellent value for money,” Machin said.

Christmas food sales are “definitely” ahead of pre-pandemic levels, he added, and standout foods now account for 26% of customers’ cart spend.

M&S also attributes lower profits to “unusually high marketing costs” as the cost of living crisis has “intensified” competition for customer acquisition among supermarkets. However, these costs should be mitigated over time. The retailer also plans to improve marketing effectiveness by making its app “must-have” for customers.

Machin said he is confident that the quality of M&S’s products and the innovation behind them will see the company weather the “stormy weather”.

Although the impact of the cost of living and inflation crisis is widespread and is expected to become a bigger issue in the coming months, Machin said: “While no one is immune, demographics of our customers means they have a greater cushion in the face of the current financial crisis. squeeze”.

Value driven

Meanwhile, M&S clothing and home business sales increased 14% in the six-month period, with in-store sales up 18.8% and online sales up 4.9 %. Profits reached £171.4m, up from £128.4m last year.

The division also gained market share for the first time since 2012, rising 50 basis points to 9.1%, according to Kantar data. At the same time, M&S has “steadily” increased its value and style perceptions, with Bickerstaffe pointing the finger at the denim category, where most M&S ​​jeans cost under £30.

“We are focused on providing value for money for customers and, where possible, protecting our key categories,” she said.

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However, Bickerstaffe expects the company to “breathe through” more inflation hikes due to the dollar exchange rate, while “ensuring that we can protect our customers and we protect the lines that really matter to us.” [them]”. The current rise in inflation in the sector is around 7%.

When it comes to this winter’s World Cup, Machin said M&S’ “biggest goal” is to capitalize on how customers are celebrating the tournament at home. He highlighted the clothing and home sector’s partnership with the England team, announced earlier this year.

Elsewhere, M&S’s joint venture with food delivery service Ocado suffered a loss of £700,000. Machin attributes this to a return of customer behaviors to pre-pandemic levels in terms of basket size and delivery regularity, as well as “increasing costs, like everywhere else”.

Changes have been made to the website to improve the customer experience, which is rolling out “not at pace, [but] Carefully.” Machin noted the “great opportunity” facing new Ocado CEO Hannah Gibson to “reset” the company.