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
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
News
i100
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
Extras
indybest
News
Richard Norris in GQ
mediaGQ features photo shoot with man who underwent full face transplant
Sport
Lionel Messi looks on at the end of the final
football
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Your picture is everything in the shallow world of online dating
i100
News
The Swiss Re tower or 'Gherkin' was at one time the UK’s most expensive office when German bank IVG and private equity firm Evans Randall bought it
news
Life and Style
Attractive women on the Internet: not a myth
techOkCupid boasts about Facebook-style experiments on users
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
football
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

Graduate / Trainee Recruitment Consultant - IT

£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

HR Business Partner - Banking Finance - Brentwood - £45K

£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

PA / Team Secretary - Wimbledon

£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

HR Business Partner (Maternity Cover 12 Months)

£30000 - £34000 Per Annum 25 days holiday, Private healthcare: Clearwater Peop...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on