Marks & Spencer: Fashion vs Food

When did the general public fall out of love with Marks & Spencer? Once known for both its outstanding fashion and food offering, the British department store once prestigious image seems to losing its shine. For years now, UK’s beloved high street department store group has been working against the swing of the fashion wheel to boost its slipping fashion sales as the arrival of fast-fashion giants such as H&M, Zara and New Look began taking away its market share. Now, with its food sales slipping as well, M&S may need to undertake larger measures to stem the tide. But now the question remains which area should M&S be focusing on - Food or Fashion? FashionUnited takes a closer look at both sectors and their sales, overall impact and market share.

In terms of market value, Marks & Spencer has seen an average yearly growth rate of 11 percent. For the financial year 2014/2015, M&S reported a group profit of 10.3 billion pounds. For the same year, M&S reported fashion revenues for the UK of approximately 3.5 billion pounds, which is over 88.5 percent of its UK General Merchandising sales total of 4 billion pounds. However, food sales in UK where just over 5.2 billion pounds in the same year. This means that in value, 51 percent of the total revenue is coming from M&S’s UK food sales, whereas only 34 percent comes from fashion. Interestingly enough, M&S has nearly double the amount of fashion products for sale (12,300) in comparison to food products (6,400) in its catalogue. However, its food sales remain 1.5 times higher than fashion sales, which makes food the clear winner over fashion when it comes to UK revenues for M&S.

M&S food division triumphs fashion in terms of UK revenues

Looking back at M&S revenue growth, it also becomes apparent that food wins over fashion. In 2015 revenue growth on foods reported an increase of 3.4 percent, in comparison to fashion sales which decreased 2.5 percent. Over the past four years, M&S has seen an average decline of 1.7 percent in fashion sales from 3.8 billion pounds in 2010/2011 to 3.5 billion pounds in 2014/2015. This means that M&S’s UK fashion sales have dropped 6.7 percent over the past five years. M&S’s food sales on the other hand have shown a rapid growth over the same period. Food sales grew 3.4 percent in the last year, averaging a growth of 3.9 percent over the past four years. M&S’s food revenue has increased 16 percent from 4.5 billion pounds in 2010/2011 to 5.2 billion pounds in 2014/2015, suggesting once more than food remains a top contender for M&S in terms of revenue.

However, looking at the current market share of both M&S fashion and food categories suggests that fashion could be winner this time around. M&S currently accounts for 9 percent of the total of UK women’s wear fashion sales and an impressive 26.3 percent of the total of UK lingerie sales, as one of the UK’s leading lingerie brands. In addition, M&S also accounts for 10.8 percent of the total of UK’s men’s wear sales and 5.9 percent of the UK total children’s wear sales. This complete market share in value means that M&S has an impressive market share within the UK fashion market. In comparison, M&S food division currently accounts for 4.1 percent of all food sales in the UK, a mere fraction compared to the market share of its fashion sales. This makes M&S fashion category the victor in terms of market share.

M&S fashion sector takes the cake with its UK market share

But, is fashion still the winner in terms of market share growth? Looking back to early 2011, M&S women’s wear sales in the UK has a market share of 10.8 percent, which means it has declined by 1.8 percent over the past four years. The high street store also saw a slight dip in the market share of its lingerie, which dropped 0.8 percent in the last four years from 27.1 percent in 2011. Men’s wear and children’s wear also reported similar decreases of 0.7 percent respectively. However, M&S seems to be on the rise when it comes to the market share of its food division, as it is on the up for its revenue growth. M&S food section accounted for 3.8 percent of the market share in 2011 and has increased 0.3 percent in 2015 to 4.1 percent.

Even though it may seem like the smallest of increases, the UK food market remains exceedingly larger than its fashion market. For example, food and beverage sales in the UK totalled 113.4 billion pounds in 2014 (including alcohol) whilst apparel and footwear sales in the UK during the same year were 63 billion pounds. With this minor increase, M&S’s food sector is leading the paving the way for improvement with its market share growth.

In regards to M&S International sales, things seem to have been quite stable in terms of revenue from both food and fashion over the past years. M&S sells both its general merchandise, which includes fashion, as well as food in its overseas stores. However M&S only offers its home collections in France and Italy. International sales accounted for 1 billion pounds in 2015; 1.2 billion pounds in 2014, 1.1 billion pounds in 2013 and 1 billion pounds in 2011. However, due to shifts in exchange rates there have been a few changes made to M&S’s international sales. In domestic currencies, international sales declined 5.7 percent between fiscal year 2014 and 2015.

But which division has a stronger appeal in M&S oversea markets?

Prior to FY 2014, international sales for M&S where on the rise, growing strongly on the increase of 6.2 percent from FY 2013 to FY 2014. According to M&S’s figures for FY 2014, over 74 percent of its international sales come from its general merchandise division, which means that approximately 0.8 billion pounds of its FY2015 sales came from this sector. Looking back at the fashion segment share in general merchandise, which is 91.2 percent, this means that 0.7 billion pounds are fashion sales. This is over 2 times the value of M&S international food sales, which account for 0.3 billion pounds in FY2015, suggesting that M&S fashion hold a stronger appeal overseas than its food.

Marks & Spencer market value is 8.1 billion pounds as of this week - which is 8 percent less than its in March this year. For its first quarter forecast for the financial year 2016, M&S reported a like-for-like growth in food revenues of 0.3 percent, an increase that was clearly below market expectations. Over the last few periods, M&S had witnessed an average growth of its foods revenues of 3.9 percent on a yearly average, however its Q1 like-for-like food sales were 1.8 percent. As M&S market value has decreased 6 percent between March 2015 and today, this shows how its food division greatly impacts its market value. If the revenue growth of M&S food division remains below market expectations, then its market capitalization may also report an further decrease.

However, if M&S food revenues improve in its next quarter, then M&S overall market value will also improve. If M&S manages to maintain its yearly average revenue growth of 3.9 percent on its food sector, FashionUnited predicts that its overall market value will rise 4.7 percent on average, leaving M&S with a market capitalization of approximately 10.7 billion pounds in 2020. Looking at the overall market value of the two divisions it becomes clear that M&S Food is the winner, and M&S should be investing in this division to boost their market value. However, looking closer at M&S overall market value and food market value also shows an intricate link between the two which suggests that one cannot increase without the other increasing.

This is the fifth episode of a new series based on FashionUnited's unique business intelligence Top 100 Index. Stay tuned next week's episode on October 23rd, which focuses on Fast Retailing’s Uniqlo.