What's going on here?
Marks & Spencer (M&S), the British retail giant, said on Wednesday that it experienced a big drop in profit over the past 12 months while it continues to spend money to refocus its business. But investors apparently saw reasons to be optimistic, as its shares rose about 1.5%.
What does this mean?
M&S’s current CEO took the helm about a year ago and set about trying to steady a rocky ship: like many clothing retailers, sales were falling sharply as online shopping increasingly redefined retail. In this past year, he’s placed more emphasis on M&S’s food business, closed its international stores and simplified its clothing offering. The strategy appears to be working: sales of “full price” clothing increased in the first three months of 2017, for example. But even excluding the one-off costs associated with closing stores, the firm’s profits continued to fall – so there’s clearly still work to do.
Why should I care?
For you personally: Retailers are cushioning some of the Brexit blow for you.
British retailers are contending with lower profit margins as the comparatively lower value of the pound pushes up the price of imports. But they’ve been hesitant to fully pass on the higher prices to their customers (as they might lose business to competitors that don’t increase their prices as much!). While that’s bad for British retailers, the good news is that they’re bearing some of the higher costs so you don’t have to – at least for now.
The bigger picture: Clothing retailers are revamping their strategies.
M&S is moving away from seasonal fashion lines and is instead trying to sell garments that are “timeless” mainstays of any wardrobe (think: black dresses and blue blazers). These relatively upmarket essentials shouldn’t ever need to be discounted, as people will buy them now and in years to come. By contrast, Macy’s and others in the US are betting on exclusive fashion lines that their customers won’t be able to get anywhere else (e.g. on Amazon). Of course, perhaps neither will be able to counter “the Amazon threat”…