M&S hit by Covid-19 restrictions and EU paperwork

Covid-19 restrictions in the past three months saw Marks & Spencer take a knock in sales as the retailer suffered from the November lockdown and tiering restrictions.

Bosses at the high street stalwart revealed that sales in the three months to December 26 fell 7.6% on a like-for-like basis, with the food division growing 2.6%, but clothing and home sales dropped 24.1%.

The national lockdown in England hit particularly hard, with both food and non-food sales down 4.5% and 40.5% respectively.

Online sales were strong – including a new tie-up with Ocado to offer grocery deliveries for the first time – and shoppers were keen on buying sleepwear and leisurewear as they stayed indoors.

Boss Steve Rowe also warned that, despite the UK signing a free trade agreement with the EU, new rules and regulations are set to “significantly impact” its overseas ventures in Ireland, the Czech Republic and France, although he insisted the company is “actively working to mitigate” the issues.

However, he said that, in spite of the Brexit and Covid knocks, M&S had a “robust” Christmas period.

M&S saw strong sales of champagne and sparkling wine – up 48%, pigs in blankets up 22.5%, Brussels sprouts up 26%, hampers up 139%, flowers up 128% and smaller turkeys up 35% due to Christmas gathering restrictions.

“More importantly, beneath the Covid clouds, we saw a very strong performance from the food business, including Ocado retail, and a further acceleration of clothing and home online.”

Looking forward, Mr Rowe said: “Near term, trading remains very challenging, but we are continuing to accelerate change under our Never The Same Again programme to ensure the business emerges from the pandemic in very different shape.”

On the food division, the retailer saw mixed results, with food-on-the-go sales dropping in towns and city centres as office workers stayed at home.

But there were strong sales in the four weeks leading up to Christmas – up 8.7% – particularly at large retail park and Simply Food stores, which have remained open throughout as “essential” retailers.

M&S added that the clothing and home division has been repositioning its ranges and the 46.5% fall in in-store sales was partially offset by 47.5% growth in online sales. This included a rise in the number of full-price items sold.

International revenues dropped 10.4% due to global Covid-19 restrictions, and the company warned that the new free trade agreement between the UK and the EU is causing problems with “potential tariffs on part of our range exported to the EU, together with very complex administrative processes”.

Mr Rowe explained that the problem stems from “point of origin” rules, which he said create huge complexities.

He said: “Essentially, there is about a third of the product in our food business that is subject to very complex rules of origin arrangements, around the components within it, and how much has been altered in the UK.

“Depending on that there is a variable tariff. Any product that’s manufactured in Europe, comes to the UK and is then redistributed to somewhere like Republic of Ireland also, potentially faces a tariff.

“So, the best example is Percy Pig is actually manufactured in Germany, and if it comes to the UK and we then send it to Ireland, in theory, he would have some tax on it.”

The boss also said in a call with journalists that since the national lockdown in England and Scotland announced on Monday, the company has seen absences double in the past week – particularly in the South East of England.

He said: “The absence rate across the country’s around just under 10%, but there are spikes in that.

“When we see Covid in any one area, you tend to get a cluster of spiking. We’ve got about 10% (absences) and about 4% of people are isolated due to contact.

“That’s something we’re managing quite carefully, but we’ve got a really good track and trace system, which is internal, which we developed right at the start.”

Staff who are off will continue to receive full pay, he added.