M&S pins hopes on Ocado deal as it faces uncertain future

Marks and Spencer has reported the heavy costs of its restructuring programme just at it prepares to stick its hand out to investors for more money to fund its Ocado deal. Check out its full year results for the 52 weeks ended 30th March 2019 here.

Steve Rowe, Marks & Spencer CEO, said: “We are deep into the first phase of our transformation programme and continue to make good progress restoring the basics and fixing many of the legacy issues we face.”

Although its latest results aren't as bad as some may have feared, they are by no means strong. “Sales are continuing to slide at both the clothing and food divisions at alarming rates, while management has guided for margins to shrink at both divisions in the current financial year,” says Fiona Cincotta, Senior Market Analyst at City Index.

She adds: ”The company's uncertain future is reflected in the eye-watering deep discount that has been applied to the capital raising. Management is at least in the right head space by cutting the dividend and giving more priority to investment. The Ocado deal may well offer this increasingly irrelevant old retailer a new lease on life, but the size of the discount on the equity raising will only stoke concerns that M&S has paid too much. Investors will have to wait until the back end of next year to see if the deal can start bearing the requisite fruit."

Convenience conundrum

When you no longer win on price, convenience, quality or experience, consumers no longer have a reason to buy from you. That’s the position M&S finds itself in, according to William Hall, Strategy Director at Landor.

“As it closes stores to move away from High Street ubiquity, its market share has taken a nose dive. Price and quality wise, we know that M&S has always positioned itself at the premium end of the scale, competing with the likes of Waitrose,” he says. “However, the huge success of Aldi has challenged the notion that you have to pay premium prices to get premium grocery products. Regarding its convenience conundrum, the recently announced deal with Ocado could offer some hope for a brand that has famously stood back from home delivery groceries.”

As buying habits continue to change, today’s results should be seen not as a challenge, but an opportunity, Hall believes. M&S now has a unique chance to explore where it has permission to grow its offer and audience. “But to do so, it need to understands where its brand DNA of trusted quality can take it in the future,” he concludes.