How fuddy-duddy M&S wins over fast fashion
“It’s great fun making money again,” says Archie Norman, president of Marks and Spencer.
Give yourself a moment then for Boohoo and Asos. Because a turnaround in the retail trade goes both ways.
At M&S, after five dismal years, profits are heading in the right direction, up to 10 times higher than last year if the retailer’s revised forecast holds. At Asos and Bohoo, they are not. Asos has had a record year of pandemic trading, but said it expects profits to fall by at least a quarter in its new fiscal year. At Boohoo, margins are shrinking and capital spending is increasing. Missguided would be search for additional funding after a few difficult years.
The stock price performance for the year to date shows that fuddy-duddy trumps fast fashion. M&S has grown by almost 70% since the dawn of 2021. Asos and Boohoo have lost more than 40% each. M&S once again surpassed the two online retailers in terms of market capitalization.
Does this reflect a structural shift in rapid online fashion in favor of a lagging legacy?
Unlikely. Asos on Wednesday presented details of its Alabama bankruptcy laws plan to boost sales to £ 7 billion over the next three to four years. Last month it announced its highest annual profit to date of £ 177million. Boohoo’s sales are expected to exceed £ 2 billion this year and have grown at a rate of over 20%.
In apparel and home, M&S had pre-pandemic sales of £ 3.2bn and declining. Fast forward 18 months and they continue to decline, according to half-yearly figures released Wednesday. A decent part of M&S performance is due to food. This has already weakened, but M&S has done a good job of addressing it and is showing solid growth.
What the divergence shows is the waning advantage of 2000s-era online retailers and the progress made by incumbents such as M&S in catching up.
In some ways, M&S and its rival Next are not pursuing such different strategies than Asos and Boohoo.
They all want to be multi-brand platforms in a way. All of them have taken stakes in other brands. M&S to Jaeger. Then, Victoria’s Secret. Asos, Topshop. Boohoo a whole Main Street chess menagerie. For Next, as for Asos, fulfillment of partner orders is a key element of potential growth. Quick fashion “test and repeat” strategies are now the norm. Winning product lines, improving availability and staffing seem to be paying off at M&S.
But M&S and Next are both determined that physical stores have their place in the future as well. M & S’s target is for 40% of UK non-food sales to be online in three years. This leaves a lot of room for real estate.
M&S could still end up with too many stores and a closing bill exceeding the £ 943million it already estimates. Almost everything has gone in the direction of M&S since the first upward revision of its earnings forecast in August. It may not continue.
But after surviving the turbulence of the past few years, the pressure appears to be easing on the streets as it increases online. M&S benefited from the departures of Debenhams and Arcadia. Next’s rent bill has gone down considerably. Meanwhile, Asos and Boohoo face potentially fiercer competition, just as they need to increase their investments to support their expansion.
Boohoo is 15, Asos 21. They are at risk of becoming the aging latecomers to Shein, a Chinese e-commerce company that barely existed eight or nine years ago. Shein could be the world’s largest clothing retailer as early as next year, Morgan Stanley analysts believe. Its prices for Gen Z-focused fashion are cheaper than anywhere else except Primark and delivery times for its fastest products as little as a week. This may be a bigger threat to Boohoo than Asos (who has an older customer base), but makes expansion for either more difficult.
M&S investors are used to false dawn. At least they can be reassured that the company isn’t the only retailer facing challenges. And as Norman says, these benefits are really “pretty cool”.