Marks & Spencer has taken a £145m hit on the unsold clothing piled up in its warehouses as the retailer said the huge financial toll of coronavirus would result in a “lost year” for the business.
Last week the company launched a half-price “rainbow sale” in an attempt to begin clearing its mountain of unsold spring and summer fashion. The high-street lockdown has in effect wiped out an entire season for fashion retailers, with M&S’s clothing sales dropping 75% over the past six weeks.
The M&S chief executive, Steve Rowe, said one of the biggest challenges arising from the pandemic crisis was a “mounting backlog of unsold stock”. M&S had £500m of clothes and homewares sitting in its stores and warehouses when the lockdown began – and another £560m ordered for the autumn/winter season. “As the lockdown eases, a large proportion of current season stock will remain unsold,” Rowe explained.
The UK’s biggest clothing retailer was able to cancel £100m of late-summer stock orders. while about £400m was year-round clothing basics – such as T-shirts, leggings and tights – that it hopes to sell eventually. It is putting £200m of summer dresses and tops into storage facilities for next spring. However, it still took a one-off charge of £145m for the handling, clearance, storage and write-off of the “stock bulge”.
Publishing its annual results for the year to 31 March, M&S made a pre-tax profit of £67.2m, compared with £84.2m last year, after £336m in one-off costs. About £213m of that figure was the stock writedown and other costs related to the pandemic. The company has scrapped its final dividend and told shareholders not to expect payouts in 2021 either.
The turmoil created by the coronavirus has added to the upheaval at the 136-year-old retailer, which Rowe and Archie Norman, its chairman of three years, are restructuring after a long sequence of falling sales and profits. “Although it’s been a lost year financially, it’s not going to be lost year for the business,” said Norman, who claimed the crisis management of the last two months had forced the business to change more rapidly than it would otherwise have done.
In the six weeks to 9 May, clothing and home sales dropped 75%, while sales in its food halls, excluding its restaurants, fell 4.6%. The company said even though its website had continued to operate, demand for clothing in the initial weeks was low, although it had begun to improve, with sales up 20% in the last three weeks. Plans to close up to 120 stores remain unchanged, it said, adding that it was also trying to negotiate rent reductions with landlords given the scale of the downturn.
M&S’s food business has not seen the same pickup as the major supermarket chains, because many of the outlets are near office blocks or in transport hubs, which have been deserted during lockdown. However, it is set to benefit from the huge shift to online grocery shopping seen in recent weeks when its groceries replace Waitrose’s in Ocado vans at the end of the summer.
The retailer said its online food range would be 50% bigger than the Waitrose range, at 6,000 products. Some clothing, including staples such as schoolwear, would also be stocked on the Ocado site. M&S said it was also in talks with other clothing brands that it wanted to sell via its own website as well as in its big stores; however, Rowe said it had no plans to become an online department store similar to rival Next.
Shares closed up 11% at 95p. Joe Healey, an analyst at the Share Centre, said investors were optimistic about the Ocado partnership: “The acquisition of 50% of Ocado Retail is a valuable investment in online grocery. We all know, particularly throughout this virus, how critical the shift to online has been for consumers. I think investors will be satisfied with the results today. The business has clearly adapted well to changing market dynamics.”
