A tale of two retailers

Marks & Spencer may have found itself on the wrong end of the consumer slowdown, but just across the road at Primark, business is still booming, reports James Thompson

Oxford Street, London, last week: Primark's flagship store was heaving, and hordes of tourists stood outside with the value-fashion giant's increasingly ubiquitous brown paper bags. But on the opposite street corner, at Marks & Spencer, tumbleweeds were blowing through its ground floor.

Yesterday, the numbers put out by M&S and Associated British Foods (ABF), which owns Primark, lentfurther support to the view that Primark has been powering ahead during the credit crunch while its rival has been taking a pounding.

M&S said its like-for-like general merchandise sales, of which clothing accounts for the overwhelming majority, tumbled by 6.2 per cent for the 26 weeks ending 27 September. Incontrast, ABF said that Primark'sunderlying sales grew 4 per cent for the year to 13 September and that,crucially, the growth was the same across both half-year periods. Of course, M&S, which generates half its sales from food, and sells clothing at significantly broader price points, is a different beast to Primark's volume and price-driven value offer.

But the stark difference in figures from the high street's two biggest clothing retailers by volume raised the question: why is Primark powering ahead during the credit crunch and why is M&S taking a beating?

Certainly, M&S seems to be heading for a rough ride until at least 2010, as the UK headstowards an inevitable consumer recession. For the 26 weeks ended 27 September, M&S's total adjusted pre-taxprofits fell by 34 per cent to £297.8m.

Sir Stuart Rose, M&S's executive chairman, said that trading since the end of September had been "volatile", which some City analysts translated into "awful", although its clothing sales benefited from last week's cold snap.

Sir Stuart said: "It is not a surprise that during the recent shenanigans on the [financial] market people were staying at home watching TV."

However, ABF's chief executive George Weston said that since 13 September Primark's underlying sales had continued at a "similar" level: "The things that affect our sales in the short run are the weather and thequality of our ranges. We are still trading well."

For the full year, Primark's profit increased by 17 per cent to £233m, although its profitmargin eased off from 12.5 per cent to 12.1 per cent.

Mr Weston denied that hiscompany is benefiting because its younger customer base is under less financial pressure fromrising mortgages and utility bills. Mr Weston said: "Our target market is 13 to 35-year-olds – women in particular – with children. I don't think that is a cash-rich group. We are not seeing muchdifference in different regions or demographics."

Of Primark, Nick Bubb, the Pali International analyst, says: "Their key skills are in buying to a price. They have got fantastic sourcing skills."

While City analysts believe Primark's growth may taper off over the coming year, Primark's strategy of selling fashionable products at extremely low pricing seems to make it less exposed to a downturn.

In contrast, as Sir Stuart never tires of saying, M&S is "the broadest church in the land", meaning it aims to sell clothes to most of the UK's population,although their core customer is much older than that of mostfashion retailers. He said that M&S "marginally" lost market share, based on value, or money going through the tills, in menswear and womenswear, but grew market share in lingerie and kidswear.

Across clothing and footwear, M&S's market share by sales value fellslightly, to 9.9 per cent for the 12 weeks to 14 September, down from 10 per cent in the same period last year, according to TNS FashionTrak. But by volume of sales, its market share edged up to 10.7 per cent, from 10.4 per cent a yearearlier. Sir Stuart said: "The benchmark for the business is that if you can maintain market share in a decliningmarket – because it is a declining market in a recession, you cannot defy gravity – that is not a bad place to be, and we want to do that on the basis of being a quality retailer."

For the 12 weeks to 14 September, Primark's market share in terms of total value of sales fell from 2.7 per cent to 2.5 per cent, while its market share by sales volume fell to 8 per cent from 9.1 per cent, according to TNS FashionTrak. However, Mr Weston vehemently denied that Primark's volumes or value had fallen, saying there are "no weak areas".

To a degree, City analysts say that M&S is a victim of the consumerrecession, but others believe it hasinflicted some of its own injuries.

Tony Shiret, the Credit Suisse analyst, said: "I think they have lost the confidence of mid-market customers. The positioning of M&S has changed quite a lot over recent years." He added: "He [Sir Stuart Rose] has not really done enough product development away from the premium lines."

For instance, Mr Shiret says that M&S's Per Una range has "gone off the boil" and its premium Autograph range, which is M&S fastest-selling brand, can sometimes lack availability.

Asked about Primark, SirStuart came out fighting and said: "Primark do what Primark do. M&S do what M&S do, and I don't see a weakness."

In fact, M&S is not the only fashion retailer who wants to avoid a direct scrap with Primark.

As Mr Weston says: "Our autumn range is better than last year, and at our prices they can buy what they like, such as a men's shirt from £3. I suspect that, given the growth, we are taking customers from all over the place."

Not so rosy

After Sir Stuart Rose got the top job he had always coveted at his former employer M&S in May 2004, he quickly set about revitalising the struggling high street giant, but stubbornly refused to use the "recovery" word for some time. Many saw his achievement of delivering annual pre-tax profits of £1bn in May as the crowning achievement of that recovery, but by that time the credit crunch and the sales rot at M&S, along with much of the high street, had already set in. Alongside how he manages the downturn, a key decision for M&S in its next financial year will be whether to cut its dividend. Nick Bubb, the Pali International analyst, says: "A few months ago, I thought a dividend cut would cost him [Mr Rose] his job, but now everyone is cutting their dividend. It looks almost certain it will have to be cut."

PROMOTED VIDEO
News
Jamie and Emily Pharro discovering their friend's prank
video
News
i100
News
Tim Vine has won the funniest joke award at the Edinburgh Festival 2014
peopleTim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
News
people
Life and Style
techApp to start sending headlines, TV clips and ads to your phone
Arts and Entertainment
Taylor Swift crawls through the legs of twerking dancers in her 'Shake It Off' music video
musicEarl Sweatshirt thinks so
Life and Style
tech
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Daniel Radcliffe and Zoe Kazan in What If
filmReview: Actor swaps Harry Potter for Cary Grant in What If
News
Our resilience to stress is to a large extent determined by our genes
science
Travel
travel
Sport
sportBesiktas 0 Arsenal 0: Champions League qualifying first-leg match ends in stalemate in Istanbul
News
Pornography is more accessible - and harder to avoid - than ever
news... but they still admit watching it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Techincal Accountant-Insurance-Bank-£550/day

£475 - £550 per day + competitive: Orgtel: Senior Technical Accountant-Insuran...

Sales Performance Manager, Gloucester - £290 p/day

£200 - £290 per annum + competitive: Orgtel: Sales Performance Manager, Key Ba...

Junior Database developer (SQL, T-SQL, Excel, SSRS, Crystal rep

£25000 - £30000 per annum + bonus+benefits+package: Harrington Starr: Junior D...

Java/Calypso Developer

£600 - £800 per day: Harrington Starr: Java/Calypso Developer Java, Calypso, ...

Day In a Page

Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment