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How fuddy-duddy M&S is trumping fast fashion

“It is quite nice to be making some money again,” says Marks and Spencer chair Archie Norman.

Spare a moment then for Boohoo and Asos. Because a reversal of fortunes in retailing is running both ways.

At M&S, after a dismal five years profits are going in the right direction, up as much as 10 times on last year if the retailer’s upgraded forecasts hold true. At Asos and Bohoo they are not. Asos had a bumper year of pandemic trading, but has said it expects profits to fall by at least a quarter in its new financial year. At Boohoo margins are shrinking and capital expenditure rising. Missguided is said to be seeking additional funding after a difficult few years.

Share price performance for the year to date shows fuddy-duddy trumping fast fashion. M&S is up almost 70 per cent since the dawn of 2021. Asos and Boohoo have shed more than 40 per cent each. M&S has overtaken both online retailers in terms of market capitalisation once again.

Does that reflect a structural shift away from online fast fashion in favour of a legacy laggard?

Unlikely. On Wednesday Asos set out details of its plan to increase sales to £7bn over the next three to four years. Last month it reported its highest annual profits to date, of £177m. Boohoo’s sales should top £2bn this year and they have been growing at a rate of 20 per cent plus.

In clothing and home, M&S had pre-pandemic sales of £3.2bn and shrinking. Fast forward 18 months and they are still shrinking, half-year figures showed on Wednesday. A decent part of M&S’s performance is due to food. That faltered before, but M&S has done a good job of fixing it and it is showing solid growth.

What the divergence does show is the diminishing advantage of the noughties-era online retailers, and the strides legacy operators such as M&S have made in catching up.

In some senses, M&S and high street rival Next are not pursuing such different strategies to Asos and Boohoo.

All want to be multi-brand platforms of some sort. All have bought stakes in other brands. M&S has Jaeger. Next, Victoria’s Secret. Asos, Topshop. Boohoo a whole menagerie of high street failures. For both Next and Asos, fulfilling partners’ orders is a key component of potential growth. The “test and repeat” strategies of fast fashion are now the norm. Winnowing product lines, improving availability and personnel seem to be paying off at M&S.

But both M&S and Next are resolute that physical stores have a place in the future too. M&S’s target is for 40 per cent of UK non-food sales to be online in three years’ time. That leaves a lot of room for real estate.

M&S could yet find itself with too many stores and a bill for closures that exceeds the £943m it already estimates. Almost everything has gone M&S’s way since it first upgraded profit forecasts in August. That may not continue.

But having survived the past few years of turmoil, the pressure seems to be easing on the high street just as it increases online. M&S has benefited from Debenhams’ and Arcadia’s departures. Next’s rent bill has fallen considerably. Meanwhile, Asos and Boohoo face potentially fiercer competition just as they need to increase investment to support expansion.

Boohoo is 15 years old, Asos 21. They risk becoming the ageing laggards compared with Shein, a Chinese ecommerce company that barely existed eight or nine years ago. Shein could be the biggest clothing retailer in the world as early as next year, analysts at Morgan Stanley reckon. Its prices for Gen Z-focused fashion are cheaper than everywhere apart from Primark and lead times for its fastest products as little as a week. That may be a bigger threat to Boohoo than Asos (which has an older customer base) but makes expansion for either more challenging.

M&S investors are used to false dawns. At least they can take comfort that the company is not the only retailer navigating challenges, though. And as Norman says, those profits really are “quite nice”.

cat.rutterpooley@ft.com

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