In the money: Pressure mounts on M&S as clothing sales fall
Marks & Spencer chief executive Mark Bolland has come up against increasing pressure after the retailer delivered worse-than-expected third-quarter results with general merchandise taking the majority of the hit.
The UK retailer, which was forced to release its results early after they were leaked on Wednesday (9 January) evening, posted a 1.8% fall in like-for-like UK sales for the 13 weeks to 29 December.
Speaking to investors, Bolland said: "Within the highly promotional and challenging clothing market, our GM (general merchandise) performance is not yet satisfactory. However, we are confident that the steps being taken by the new management team will address this."
Bolland attributed a 3.8% decline in sales of general merchandise, which includes clothing and footwear, to a lower average sales price.
Although general merchandise sales were down, Bolland continued, party wear and accessories saw sales jump 36% and 45% respectively. Lingerie, sleepwear and suits also performed well, he added.
Change in strategy
The approach M&S adopted during the all-important Christmas trading period was to promote less in order to protect margins, Bolland explained.
"We wanted to do this for protecting margins. We certainly did not want to price promote ourselves through this Christmas. What we have seen out there, however, is a far higher promotional participation in the market than we have seen before."
As a result, promotional sales were down 7% on the year.
Unlike M&S, high street and international competitors including Gap decided to increase their promotional activity before Christmas - with some offering savings of up to 70%.
However, Bolland said the fact that the retailer was able to sell more full-price products within its general merchandise category was actually a positive sign.
"The fact we could sell on full-price was actually a positive and a confident statement to us. However, we felt that we wanted to make sure that we were competitive and we did that through very targeted promotions," he emphasised.
CFO Alan Stewart agrees protecting margins was the right strategy. If sales are chased at the expense of profit and margin then "we're focusing on the wrong metrics", he said.
Last year, M&S realigned its general merchandise management team under executive director John Dixon. The new line-up includes style director Belinda Earl, Stephanie Chen who is running kids and home, Scott Fyfe as director of men's wear, and Frances Russell as director of women's wear.
"Always year-by-year and nearly quarter-by-quarter, I think what we have clearly indicated is that we are extremely pleased [with] how the team has started. They have started by managing it [GM] extremely well," Bolland said.
During the third-quarter period, total UK sales edged up by 0.3%, with a 2.7% rise in food again offset by a 2.2% fall in general merchandise. Group net sales crept up by just 0.6% versus the same period of the previous year.
Looking forward in what is expected to remain a challenging trading environment, Bolland said: "We know what we have to do on GM - there is nothing new there."
"I think we have been very clear that we have confidence in the product that we have coming in. We had very positive reactions, because if you can sell more on full-price it is a good sign people are picking up what we have done."
As the CEO faces ongoing pressure to improve sales, questions were raised about his long-term position at the company.
Commenting on Bolland's role, Stewart said: "The board position is very clear. Mark has the support of the board and the shareholders are supportive of the strategy."
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