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M&S & Debenhams hang on in there as festive results pile up

“This week, major retailers are expected to reveal just how brutal Christmas has been for them in a slew of trading statements. HMV has already become the first casualty in what experts are predicting to be the worst Christmas since the recession of 2008.”

So began a typically understated ‘the sector is broken and our client knows how to fix it’ PR email, received by Essential Retail earlier this week. Unfortunately for the doomsayers, there were no profit warnings as January kicked into gear. 

It was far from a vintage Christmas as a host of major issues loomed large, including Brexit uncertainty, weak November trading off the back of a challenging Black Friday period, massive discounting and reducing consumer confidence. 

Sainsbury’s, for instance, delivered negative growth for the Q3 2018/2019 trading period ending 5th January. At the same time, however, a few big names managed to debunk the ‘retail apocalypse’ myth pushed by the mainstream media and those with skin in the eCommerce game.

Tesco, for instance, stood out as one of the big winners, with UK sales up 2.6% over the Christmas period. Tesco boss, Dave Lewis, said: “We have more to do everywhere but remain bang on track to deliver our plans for the year and as we enter our centenary we are in a strong position.”

Next gets the party started

The trading updates started in earnest with Next, which reported online sales rose 15.2% between October 28 and December 29 from a year earlier, while store sales fell 9.2%. It expects an annual profit of £723 million, slightly lower than its previous forecast of £727 million.

Next is traditionally the first out of the gates at this time of the year and often sets the tone for the UK retail sector. Sure enough, a flurry of results this morning have built on the ‘not great, but not as bad as some feared and, whilst times are tough, there are also positives’ narrative established by the fashion retailer. 

Marks and Spencer struggled, but at least avoided going off a cliff, as was predicted by some pundits and city analysts. Total like-for-like sales shrank by 2.2% in the last 13 weeks of 2018. Food sales - so often the retailer’s saving grace - slumped by 2.1% while clothing and homeware was down by 2.4%.

Chief executive, Steve Rowe, said: “Against the backdrop of well publicised difficult market conditions our performance remained steady across the period. Our food business traded successfully over Christmas as customers responded to improved value. Our transformation programme remains on track.”

In terms of food, Anusha Couttigane, principal analyst at Kantar Consulting, flagged up ongoing efforts to “re-engineer” the proposition, with one example mooted to remove confusing multi-buy promotions. Yet with the division under new management, these initiatives have yet to build momentum, she noted. 

On the fashion front, M&S continues to battle declining footfall amid poor consumer confidence and high levels of promotional activity across rivals.

“While the Christmas trading figures are telling, these come on the back of numerous challenges, including leadership changes, its accelerating store closure programme and the mission to catch up online,” said Couttigane.

“Over the last few years, M&S has struggled to revive its fashion credentials, but the retailer is now making some headway with schemes like “Try-Tuesday” digital stylist programme, which has grown five-fold over the last year, and by embracing social commerce as an early adopter of shoppable Instagram features,” she added.

In true Veganuary fashion, M&S this week unveiled a range of Vegan-friendly footwear, showing just how far these once-niche needs are galvanising mainstream fashion. Nevertheless, it still falls well behind nearest rival Next in terms of digital. While online accounted for just over 20% of sales in its last half results, Next’s online sales are pushing to 50% of the business.

Debenhams

As expected, one of the worst performers was Debenhams which continues to struggle in the face of intense competition from online retailers, high-end luxury stores and the discounters.

UK sales tumbled by 6.2% over the last 18 weeks, and by 3.6% over the festive period. It blamed pesky bargain-hunting shoppers for its poor showing, whilst CEO, Sergio Bucher, pushed home the message that, in order to ensure a sustainable and profitable future, Debenhams needs “a strong customer proposition, a strengthened balance sheet and a reshaped store portfolio.”

Weak store footfall was somewhat offset by growth in digital. Group digital sales rose 6% in the six-week period over peak, delivering two-year growth of over 20%. Debenhams also claimed improved mobile conversion and customer experience. But, unlike Next, things just aren’t moving fast enough, according to Catherine Shuttleworth, founder of Savvy Marketing.

“Despite their attempt at a positive spin on the numbers, this is a very bad result and the impact on margin is only being managed by a tight operational cost programme. But this is a one off and they have announced a refinancing which does not bode well,” she said.


Those M&S and Debenhams results at a glance

M&S: Q3 2018/19

Like-for-like UK sales fell by 2.2% YOY, clocking in at £2.78 billion.

UK clothing sales dropped 4.8% - and 2.4% like for like – with revenue of £1.1 billion. UK food sales declined by 1.2%, or 2.1% like for like, with sales of £1.67 billion.

International sales were down by 15.1% (£262 million).

Overall group sales fell by almost 4% (£3.04 billion).

Debenhams: 6 weeks and the 18 weeks to 5th January 

3.4% fall in sales over the Christmas trading period.

Comparable sales in the UK were 3.6% lower than last year due to weak store footfall.

Over the 18 weeks to January 5, UK sales dropped 6.2% and international sales were down 3.5%, but digital sales were 4.6% higher in the same period.