Blog: Leonie BarrieCost cuts no surprise at M&S

Leonie Barrie | 7 January 2009

M&S has long been under pressure to slash costs, so this-morning’s announcement of store cuts and redundancies has largely been welcomed by analysts.

The retailer is looking at operating cost growth for its current financial year to be towards the lower end of its 4-5% guidance, while for next year UK capital expenditure could be down by up to GBP200m.

The store closures and reduction in head office staff shouldn’t have come as a surprise either, especially after the retailer slashed the redundancy terms for its staff last September. The following month it also began a cull of staff in its store design, development and property teams.

But even though Marks & Spencer narrowly avoided a worse than expected drop in sales during the Christmas period, its policy of cutting prices to drive sales and help preserve market share will lead to an expected 1.75 percentage point decline in full-year gross margins.

Quizzed by analysts today, chairman Sir Stuart Rose also admitted that a further threat to margins is looming in the form of higher costs caused by the sharp devaluation of sterling. “There’s a difficult margin situation coming up in autumn with regards to currency,” he said, referring to an estimated 20% currency-related increase in the cost of clothing made overseas.

“We hope to mitigate this through better sourcing, more consolidation and a drop in raw materials prices going forward,” he added, but the difficult choice that lies ahead is whether to absorb this effective cost increase and take a further hit on profits, pass it on to consumers, or more likely, suppliers.



Asia facing up to increased competition

Increasing competition for garment sourcing contracts is seeing China not only being challenged by other countries in Asia, but by sub-Saharan African and even Russian suppliers too. And it is pushing...


Cambodia raises garment worker wages

The monthly minimum wage for workers in Cambodia's textile, garment and footwear sector is set to rise to $153 from January next year, following a vote on the issue last week. The increase marks a ris...


Sportswear initiatives start to take shape

The results of two highly-anticipated initiatives in the sportswear sphere were revealed last week: the launch of Under Armour’s new UAS lifestyle brand and the first pair of running shoes created at ...


Hanjin Shipping collapse triggers fear of West Coast port repeat

The recent bankruptcy of South Korea's Hanjin Shipping, the world's seventh-largest container shipper, at the end of August, has left billions of dollars worth of merchandise in limbo, leaving the fal...

just-style homepage

Forgot your password?