M&S credits transformation plan for festive boost as loyalty membership doubles

Marks & Spencer is backing its turnaround plan after a “strong” festive period, which resulted in a record Christmas for food sales and the second consecutive quarter of growth across clothing and home.

M&S Food sales rose 12.4% on a two-year basis to £1.9bn in the 13 weeks to 1 January. Sales excluding hospitality and franchise rose by 16.4 % to £1.7bn. Compared to the 2020/2021 festive period, food sales were up 10%.

Sales across clothing and home rose 3.2% on a two-year basis to £1.1bn, fuelled by full price sales which grew by 45%. Compared to the 2020/2021 Christmas period, clothing and home sales were up 37.7%.

As a result, M&S has raised its full-year pre-tax profit guidance by at least £500m, assuming there are no further Covid-related restrictions or lockdowns.

“Throughout the Christmas period we have sustained a strong trading performance, with group sales up by 8.6%,” said CEO Steve Rowe, speaking today (13 January) on a press call.

“This reflects the improvements we’ve made to our products, protecting the magic of food and continuing to develop everyday style in clothing and home. In both areas offering trusted value.”

Over the festive period M&S also launched its first app-only Sparks campaign, ‘The 12 days of Christmas’, which drove 300,000 new app downloads. The retailer now has more than 14 million Sparks users, with membership doubling since the start of last year.

This could prove an interesting data play for M&S, which in November said third-party partner brands such as Nobody’s Child will be able to “better utilise” its extensive customer database and digital loyalty scheme.

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Reflecting on the festive sales, Rowe called out the company’s status as the “fastest growing major store-based food retailer” over the Christmas period.

Larger basket sizes for food were maintained as customers used M&S for more everyday shopping. Rowe credited the work done to broaden the appeal of the food ranges, citing the example of rising demand in core categories such as dairy, where sales increased 12%.

M&S products also “performed strongly” on Ocado, in which the retailer holds a 50% stake, representing approximately 30% of baskets in December.

Customers are recognising is it’s not about cheap, it’s about great value products.

Steve Rowe, M&S

One in four fresh turkeys in the UK is sold by Marks & Spencer, with the retailer seeing a 30% surge in sales of meat joints and a 147% increase in food to order sales of its vegan Plant Kitchen range. Core prosecco sales rose 6%, rocketing by 52% for the rosé variety, while M&S sold more than 1 million of its £5 light-up shortbread biscuit tins.

In addition, the retailer sold more than 1 million bottles of its light-up snow globe gin, which Rowe described as a “phenomenal” product. M&S is, however, currently in a legal dispute with rival Aldi over an alleged copyright infringement of its gold-flake gin infusions.

The retailer claims that in November Aldi began selling The Infusionist range of gins in clementine and blackberry flavours, using bottle designs that “copy” the M&S Light-Up Gin.

Last month, M&S called on Aldi to “surrender or destroy its stock and pay damages plus costs”, but the discount chain refused to stop selling the gin range. While unwilling to be drawn on the details of the case, Rowe emphasised the importance of innovation to the business.

“We regard our development process and IP as something that’s really special,” he said.

“Our teams put a lot of work into making sure M&S product is differentiated, is better quality, is innovative and we’re going to make sure we protect that IP and we protect as many of the small suppliers who develop it with us. Bear in mind this is small suppliers in the UK who are often getting hurt.”

Growth trajectory

In clothing and home, M&S claims to have maintained its “trusted value trading stance”, reducing the amount of product sold on promotion by 66% and cutting the levels of stock put into sale by 21% versus 2019/2020.

Online clothing and home sales hit £361m, up 50.8% compared to 2019/2020, fuelled by what M&S describes as the substantial expansion of in-store fulfilment. Some 50% of online orders are now picked, packed and posted direct from stores, an approach Rowe described as an “important advantage” for M&S over its rivals in terms of offering customers a rapid service.

By contrast store sales were down 10.8% on a two-year basis, with sales in retail park locations continuing to outperform city centre shops.

Rowe explained the trajectory is moving towards growth online, which the retailer believes will represent 40% or perhaps even 50% of business in the coming years.

“One of the great advantages of Marks & Spencer is we are truly omnichannel, whereas others are not,” he said. “What we’re seeing is we can react to customer demand of different types. So, retail park sales are up on the year and it was the city centres where we’ve got less people going to work.”

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From an international perspective, sales increased 5.1% to £272m on a two-year basis, with online sales more than doubling. Performance was driven by the growth of clothing and home sales in Ireland and other key markets such as India once Covid-related restrictions were eased. In addition, M&S reported generating “strong growth” through online marketplaces and in franchise shipments to the Middle East.

Overall, Rowe described 2021 as a “strong clothing, gifting Christmas”, during which customers recognised the “strength” of the changes M&S has made to its style credentials.

The pivot towards casualwear over the festive period continued, with sales of nightwear up 25%, knitwear up 7% and denim up 12% on a two-year basis. Gifting rose by more than 50%, with sets of family pyjamas representing 30% of sales across the Christmas gift shop.

M&S saw strength coming from beauty products, with its Apothecary own brand up 24% on last Christmas, generating £20m in sales.

The retailer also called out the “strong” reaction to the small-scale release of spring merchandise two weeks before Christmas, which gives the team greater “confidence” in the new products soon to hit stores.

In a wider sense, the retailer invested heavily in driving demand through marketing over the festive period, releasing separate campaigns for food and clothing and home. M&S Food brought brand mascot Percy Pig to life in its biggest campaign for several years, which by the end of its first day of release was estimated to have been seen on TV almost three times by nearly half of UK adults.

The business also predicted that social media would be “much bigger than anything” for the M&S Food Christmas campaign, particularly on TikTok where Percy Pig is proving popular.

This was coupled with the release of a charity Christmas song from the team at M&S Food in Romford, who have built up a big following online. The song has been watched almost 900,000 times on the M&S YouTube page alone.

In clothing and home, M&S focused on its ‘Anything but Ordinary’ brand platform, with a view to re-establishing the retailer across key fashion and gifting categories.

As well as running across everything from TV to print cover wraps and an activation at London’s Waterloo station, M&S made the TV ad shoppable using Flowcode, enabling customers to scan a QR code on screen to immediately buy products.

Resisting cost pressures

Reflecting on the pressures of inflation, M&S CFO Eoin Tonge confirmed that despite the work being done to mitigate rising raw material and supply chain costs it is “inevitable” some of that pressure will result in higher prices for consumers.

Being a largely own brand business has helped M&S have tighter control of its prices, said Rowe, who explained that having direct relationships with manufacturers has enabled the team to drive efficiencies in both food and clothing and home.

Rowe added that the prospect of rising inflation is increasing the importance of the retailer’s “productivity plans, store rotation and technology investment” in 2022, as well as working closely with suppliers.

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“One of the things that we would say about Christmas is that our strong relationships and collaborative approach with suppliers over many years, in fact how we dealt with them during the course of the Covid pandemic, I think has meant we have had particularly strong delivery from them over this period,” the M&S CEO added.

“We see that continuing. Things like the pressures of inflation, we’ll work carefully with those trusted partners to offset as much as possible and continue to deliver great value for our customer.”

Recognising the UK is still “mid-Covid”, Rowe explained that while shoppers might feel weary of life under the pandemic, consumer sentiment with regard to Marks & Spencer as a valued retailer is at a record high.

Reacting to the pressure being applied by discounters, including the likes of Aldi and Lidl in the grocery sector promising even lower prices, the M&S CEO believes customers are “desperate for great quality merchandise”.

“That is one of the key fundamental things we offer, that and innovation. What we’ve seen is a flight to greater value rather than necessarily cheap prices,” Rowe added.

“Our value perception is the best it’s been in clothing for over three years and in food about the same. I think what customers are recognising is it’s not about cheap, it’s about great value products and as the trend for longer lasting product, rather than disposable fashion, continues that plays to our strengths.”