Marks & Spencer is cutting 7,000 jobs over the next three months as part of a streamlining plan to help it cope with the changing market in wake of the coronavirus pandemic.
The announcement was made alongside a trading update for last quarter to 8 August. This showed that food sales had increased by 2.5% with like-for-like growth – excluding the impact of the closure of hospitality and travel franchise units – of 10.6%. The group stated that its transition to taking over the supply agreement with Ocado was on track for September and it was starting to see the benefits in the form of trading terms and the launch of over 500 new products in M&S stores from the expanded online range created for the switchover.
However, total revenue in its clothing and home business plummeted 38.5% over the quarter after being hit hard by the closure of its non-food stores during the lockdown. The decline eased to 29.9% over the last eight weeks when stores re-opened, although store sales were still down 47.9% against a 39.2% uplift in online sales.
As well as reduced footfall in its town centre stores and shopping centres, demand for office clothing and formal wear has been impacted by the move to home working and lack of social gatherings. In a sign of expectations that demand will remain depressed, the M&S reiterated that it had booked additional storage space for surplus stock for next year.
In a statement, the company said: “As previously outlined clothing & home trading in the stores remains well below last year, with online and home delivery strong. It is clear that there has been a material shift in trade and whilst it is too early to predict with precision where a new post Covid sales mix will settle, we must act now to reflect this change.”
The cuts to the group’s 78,000-strong workforce are aimed at adjusting costs to the reality of much lower sales in its stores. The reduction in roles will cover its central support centre, regional management and UK outlets, adding to the swathe of job cuts announced by other retailers during the coronavirus crisis.
M&S highlighted that it had learnt to work more flexibly and productively with increasing numbers of its staff multi-tasking and transitioning between its food and clothing & home units. A new technology package developed with Microsoft has also enabled it to reduce layers of management.
The retailer is hoping a significant proportion of the job cuts over the next three months will be through voluntary redundancies and early retirement. The group also highlighted that it expects to create some new jobs as it invests in online fulfilment, its new ambient food warehouse, and reshaping its store portfolio.
Chief Executive Steve Rowe commented: “In May we outlined our plans to learn from the crisis, accelerate our transformation and deliver a stronger, more agile business in a world in which some customer habits were changed forever. Three months on and our Never the Same Again programme is progressing; albeit the outlook is uncertain and we remain cautious.
“As part of our Never The Same Again programme to embed the positive changes in ways of working through the crisis, we are today announcing proposals to further streamline store operations and management structures. These proposals are an important step in becoming a leaner, faster business set up to serve changing customer needs.”
Since the start of the coronavirus pandemic, retailers such as Boots, Debenhams, John Lewis, and Dixons Carphone have announced thousands of lay-offs.
Commenting on the latest cuts by M&S, Richard Lim, CEO, Retail Economics said: “This is a massive reduction in their workforce and the retailer is desperately attempting to reposition the business towards a new normal emerging in the sector. This painful readjustment period will see a significant reduction in labour costs, cutting back on store numbers and pivoting the business model to become nimbler and more digitally focused.”
He added: “Retailers were already battling with the pace of structural change facing the sector but the impact of the pandemic has been a step-change for the industry. Retailers remain in survival mode, preserving cash and hanging on for more sustainable levels of demand to return. But the way we shop has changed on a permanent basis for many parts of the sector almost overnight. The reality is that many more retailers will fail and the number of job losses will ramp up as government support is withdrawn. This is the calm before the storm.”
NAM Implications:
- Key will be whether a 10% cut in workforce will be sufficient in the current climate…
- …and to what extent this is likely to improve in the coming two years?
- Much now depends on the extent to which ‘Waitrose customers’ are prepared to switch to the M&S offering.
- Meanwhile, with non-food = 33% and Food = 66%, the idea of voluntarily splitting these two very different business models has to be a consideration…
- …in order to make relative investment & return performance more apparent…
- …before the stock-market does it on M&S’s behalf…
