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M&S warns of ‘gathering storm’ as it braces for fall in demand

marks and spencer
marks and spencer

Marks & Spencer has warned it is facing a "gathering storm" as it braces for a fall in customer demand as cost-of-living pressures worsen.

The food and clothing retailer posted a 24pc slump in profits to £205.5m in the first half of the year to October 1, as chairman Archie Norman said the business was in the midst of a "consumer crunch period".

Mr Norman said: "We all of us have got to run faster up the down escalator."

It comes after revenues rose 8.5pc to hit £5.5bn in the first half of the year, with food sales up 3pc and clothing and home sales up 4.2pc. M&S grew its share of the clothing and home market for the first time in a decade. However, M&S shares slipped more than 4pc as it said its margins were squeezed after it absorbed some of the higher costs of groceries rather than putting up prices for customers, and faced steeper clothing costs.

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The retailer said profits in its food business were down 42pc, after costs surged 11pc in that division in the first half of the year, while it raised prices by 8pc. In its clothing business, it has upped prices by around 7pc, but said it expects to have to raise them again, due to the dollar strengthening.

Chief executive Stuart Machin said: "All the signals are that it's going to get tougher, the cost of doing business is going to get higher because of energy [prices], and it looks like consumers are going to be struggling because of the continued cost of living crisis and also higher interest rates."

M&S said it was dealing with the "most marked rise in the cost of doing business for many years" which, combined with pressures on customers, was "creating pressure on margins industry-wide".

“This will result in unviable capacity leaving the industry, creating opportunities for the leaner players who remain." It called for government help for retailers on business rates next week in the upcoming fiscal statement.

Chief executive Stuart Machin - Oliver Dixon
Chief executive Stuart Machin - Oliver Dixon

M&S said it was not making a decision on whether to resume shareholder payouts until nearer the end of the year, given it was entering into a period of uncertainty and expected a "material contraction" in customer demand next year. 

However, the retailer suggested its 30 million customers might be more resilient in a downturn, given they have on average slightly higher incomes and are slightly older. It said: "Despite the recovery in demand since the pandemic and return to travel these age groups shielded more and many retain a savings cushion affording some resilience to the headwinds."

Around 30pc of customers have already done their Christmas shopping, M&S said, a rise from previous years, which the retailer said was down to people being "determined to protect their Christmas" and seeking to spread out costs.

The number of people who had ordered their Christmas food already was up 200pc on pre-pandemic levels. More of this spend is on value items, M&S said, as customers traded down. However, the rising pressure on their finances also meant people were deciding against eating out as much. Mr Machin said: "That is good news for our food business."

M&S, however, warned over difficulties in its Ocado joint venture - the online grocery business which it owns together with technology company Ocado PLC.

M&S said this business was now loss-making, after the boom in demand experienced during the pandemic petered out. Customers are buying less per order and buying more value items, M&S said, which has led revenue to decline 4.2pc in the business and it to fall to a £700,000 loss. Ocado will be relaunching its website later this year.