What an interesting day for the UK stock market. Whilst the BBC and others have reported Marks and Spencer are set to cut around 1,000 jobs, Bloomberg has reported gains for Debenhams, Next PLC and even Marks and Spencer. So what exactly is going on?
As I previously discussed on this blog, the retail sector isn’t really just going through a downturn period – it’s really going through a period of realisation and rationalisation. The realisation is that continuing to sell almost exclusively on the high street isn’t following the trends and future of retail, and rationalisation in that they’re starting to look at ways to cut costs and streamline their businesses whilst they try to figure out what to do next.
Speaking of the word ‘next’, Next PLC have actually reported an on-target full year profit forecast for 2008, which sent its share price up by as much as 16%. Debenhams have reported a pre tax profit increase over the last 18 weeks, leading to share price increases of as much as 32%. Marks and Spencer rose to around 4.6% today at various points.
So why the massive difference between the share price increases, and the general market feeling about these three top retailers?
Let’s look at Debenhams first, bounce straight over to the ‘About Us’ section on their website, and look at Debenhams Direct.
Debenhams Direct offers customers a fantastic online shopping experience from a comprehensive UK department store. Debenhams Direct has firmly established itself as a successful online retailer as well as a leading department store with nearly 3 million customers monthly.
Pardon me? 3 million customers a month? To a website? Crikey that’s good going. From this, how about an average basket value of, say, £30 per transaction. That might be too little, or too much, but lets work with it – and lets work with the assumption their ‘customers’ are actually paying customers who buy something.
3,000,000 x 30 = massive monthly turnover for an ecommerce website. And they certainly don’t have the high street commercial rent and rates costs. Or as many staff.
Similarly, Next have had the Next Directory, their mail order service, up and running since 1999. It’s now moved online too. They have a clever integration between the online world and offline – if you get something from the Next Directory that doesn’t fit, you can exchange it at a Next store if you so wish. Clever, but still using mail order and online as clear distribution channels.
Marks and Spencer, however, don’t just sell clothes and homewares – they sell grub too. This, for investors, makes it a rather more interesting bet, especially as Marks and Spencer aim at the higher end of the food retailing market, which could make it go one way ot the other in a recession. But M&S don’t just do food – they do clothes too. Of fantastic quality. Plus, they’re still in recovery mode after post 1998 hardship, and a takeover attempt by Sir. Philip Green of Arcadia, so being a tiny bit conservative right now probably isn’t a bad idea.
Marks and Spencer have built up fantastic customer loyalty, and a reputation for quality across their entire product range. They had been lacking in the online department, but an April 2007 revamp saw their site easier to use for visitors, and it now showcases over 20,000 products. They’re not there yet, but they’re getting there. Todays news of 1,000 job cuts at M&S compares quite well to their total staff levels of around 72,000. It’s less than 2% – compare this to other companies in the current climate and it doesn’t look too bad at all. If anything, cuts like this improve investor confidence and in this day and age that counts for a lot.
Retail isn’t dead, it’s just changing with the times.