M&S’s profit ‘depends on food suppliers’
Commenting after the retailer posted underlying profit before tax up by 6.1% to £66.1M in full-year results this week, Conlumino senior consultant Anusha Couttigane said: “The strength of Marks & Spencer’s relationships with its partners and suppliers has been key to increasing margin – across both general merchandising and food – and ensuring the viability of international business against a struggling economic backdrop in Europe and the Middle East.”
The posh retailer’s food business continued to outperform, both at home and abroad, said Couttigane. While M&S had maintained a premium offer, it had also been cautious in relation to the price war waged in the UK grocery sector.
‘Almost exclusively own-label food’
“With an almost exclusively own-label food proposition, many of Marks & Spencer’s suppliers and farmers are heavily invested in their relationship with the retailer. This gives M&S leeway for price negotiation, but also creates a dynamic which means it can support suppliers with suggestions and research that helps to improve the quality of overall output,” said the analyst.
These strong relationships were now being replicated internationally. M&S’s strength in food had “shone a light in the dark”, with M&S ceo Marc Bolland enthusiastic about the reception of standalone food stores in Hong Kong and Paris.
Focus on food stores
The retailer’s UK expansion plans focus on food stores – with a target network of 250 by March 2017 – in response to the rising trend of convenience food shopping. It predicted the Food network to act as a strong addition to the retailer’s Click & Collect network.
Planet Retail’s analyst Natalie Berg said: “Simply put, M&S is finally buying for less and selling for more.”
A combination of a reduction in capital expenditure, increased sourcing efficiencies and a shift away from perpetual discounts had led to the profit, said the director of the analyst’s Retail Insights team.
While fashion remained a challenging area for Bolland, the latest results had “bought him more time in the board room”, said Berg.
“In today’s crowded market, retailers can no longer be all things to all people. As we have seen with M&S’s own food business, retailers today must have a distinct, targeted proposition in order to stand out among their peers,” said Berg.
Read more about M&S’s results here.
What other analysts say:
Julie Palmer, Begbies Traynor partner, said: “Three cheers for Marc Bolland, whose concertina turnaround plan has at last given M&S something to celebrate, after the retailer delivered its first increase in annual profits in four years. Undoubtedly the biggest breakthrough has been in the group’s general merchandise division which, after 14 consecutive quarters of falling sales, has returned to growth, indicating that its struggling clothing range may have finally turned a corner.”
Clive Black and Darren Shirley, Shore Capital: “A journalist recently asked the question if M&S could deliver £1bn of pre-tax profit again? The answer to this question is not anytime soon. However, it is not beyond reason to assert that with sustained revenue growth in general merchandise, with progress on progress in Food and some tailwind in international markets, that M&S could make considerable strides to this figure and quickly.”
