Marks & Spencer will almost certainly drop out of the FTSE 100 this week, ending the retailer’s non-stop presence since the index of leading shares was launched 35 years ago. In a sign of the times, the 135-year-old mainstay of the British high street is likely to be replaced by Polymetal International, a Russia-based miner.
M&S is in the middle of yet another overhaul to address long-running underperformance issues, particularly in clothing. Investors aren’t convinced – its shares are down almost 20% this year.
The company’s problems stem in part from a failure to respond to changes in consumer behaviour such as online shopping, demand for lower prices and faster fashion trends. For businesses to succeed they need to cater for customers who are more fickle, knowledgeable and cost-conscious.
But M&S chairman Archie Norman seems unruffled by the prospect of leaving the FTSE 100. He said: “When I went to ITV we dropped out of the FTSE 100, the sky didn’t fall in.”
Elsewhere, after the summer lull company reporting starts to rev up again this week with Dixons Carphone, Dunelm and Halfords among a range of retailers publishing results and updates. These companies have their own issues but should provide some insight into how consumers are behaving. This is particularly important because household spending has just about kept the economy afloat while manufacturing, construction and other sectors have slowed or contracted. After output shrank in the second quarter of this year policymakers are hoping we will keep spending.
Things are looking shakier as Brexit tests the nerves of even the most hardened shoppers. In August retail sales fell at their fastest pace since 2008, according to the CBI. On Friday GfK’s survey of consumer sentiment showed household confidence ebbing – including on the important measure of personal finances.
At Dixons Carphone, which publishes an update on Thursday, sales of electrical items have held up while trade in mobile phones has slumped. After GfK’s major purchase index dipped, have customers continued to splash out on big TVs, game consoles and white goods?
In the less flashy world of home furnishings, shares of Dunelm, which reports annual results on Wednesday, have risen by more than 60% this year after a rocky 2018. Dunelm’s revival is driven partly by getting online and digital sales right – something M&S is trying to sort out by forming a partnership with Ocado. By contrast, Halfords, which reports on trading on Wednesday, is in the doldrums after three profit warnings since the middle of last year. The bikes and car accessories business has blamed the weather and consumer caution for its woes.
Russ Mould, investment director at AJ Bell, said: “Overall I would expect people to be relatively cagey given that the Brexit deadline of 31 October is approaching. I think we’ll see a wide range of people adapting well and less well. It’s not uniformly bad and we can see winners and losers appearing.”
Away from retail, Greene King’s board could face difficult questions at its annual meeting on Friday after agreeing to sell to Hong Kong’s richest family for £2.7bn. Many shareholders will like the 51% premium they are receiving, but some may be unhappy about the prospect of pubs being closed and redeveloped.
Also in the leisure sector, the Restaurant Group will unveil Andy Hornby as chief executive with first-half results on Tuesday. Hornby, who started a month ago, was a surprise choice as boss because he ran HBOS when the bank faced collapse in 2008.
He will need all his Harvard Business School skills to steer the group through the casual dining crunch that has hit sales at its Frankie & Benny’s and Chiquito chains. The company is pinning its hopes on noodle chain Wagamama, bought late last year, to get sales growing again.
Business is difficult already for companies trying to attract consumers but the big risk is Brexit as the prospect of leaving without a deal increases. Gabriella Dickens at Capital Economics said: “What happens with Brexit in the coming months will determine how likely households are to spend.”
