‘M&S should return to core values’ after profits tumble

Analysts suggest Marks & Spencer needs to retrench to its core values after reporting poor results this week.

The retailer posted a drop in annual profits of 37.5% to 706.2m, down from 1.21bn a year earlier. Just as the retailer celebrates its 125th anniversary it has had to cut its dividend by a third to 15p.

Nick Coulter, director of retail equity research at Numis Securities, says: “The mid market has underperformed, and M&S has suffered disproportionately from this. It chased a market lower than it was built for traditionally, and this has alienated its core customer base. It needs to revert and go back to what it was.”

Tim Manasseh, consumer goods and retail partner at consultancy Roland Berger, adds: “Marks & Spencer has a strong brand, but it’s time for it to assess what it means to customers and focus on that. Supermarkets are doing well because they know their brands and are investing in strengthening them, even with cost cutting on the agenda.”

However, while Mintel director of retail research Richard Perks agrees that adhering to brand values is essential for M&S, he is not so downbeat about the retailer’s prospects.

He says: “M&S suffered quite badly at the end of last year, because its market was suffering. The end of 2008 saw its market – the families with cars and mortgages – become worried about their spending and borrowing, and they started saving.”

“This caused it to enter into an early recession almost, but the turnaround is happening and it looks good. Historically the brand has done well in recessions as people still look for quality and value, so it would be a mistake for M&S to begin diluting its offering, particularly with food, which is built on premium and quality.”

M&S says it plans to cut marketing costs this year. Marketing and related costs fell 8.6% to 127m in the year to March 28 and they will “be lower again in 2009/10.”

Like-for-like sales fell 5.9% in the year with a 5% fall in food sales and a 6.9% fall in non-food sales.