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Marks & Spencer To Cut Workforce – What The Analysts Said

Published on Aug 18 2020 12:29 PM in Retail tagged: Featured Post / Marks & Spencer / GlobalData / What The Analysts Said / AJ Bell / Retail Economics

Marks & Spencer To Cut Workforce – What The Analysts Said

Marks & Spencer has announced plans to cut its workforce by around 7,000 over the next three months, shedding roles in its central support centre, in regional management, and in its UK stores.

Announcing the plans, chief executive Steve Rowe said that the plans represent an "important step in becoming a leaner, faster business set up to serve changing customer needs."

Here's how leading industry analysts viewed the retailer's move:

Russ Mould, AJ Bell

“Marks & Spencer continues to make very tough decisions to right-size the business. It is very unfortunate to see thousands of job losses, adding to similar cuts among other major British businesses. Sadly, the retailer has no choice but to be as lean as possible to survive the current economic crisis and put it in a stronger financial position to recover longer term.

“The company should thank its lucky stars that it has a successful food arm, as that has helped to prop up trading during a very difficult time. Its clothing and home interests have struggled in the face of serious headwinds as demand fell off a cliff for office dressing and formal wear.

“The next big test for Marks & Spencer will be the imminent launch of its supply deal with Ocado for UK online food orders. A lot is riding on this joint venture being a success and further accelerating growth in Marks & Spencer’s food sales.

“This is the retailer’s chance to play catch-up with the online channel and failure to meet expectations could be disastrous for both management and the company’s already fragile share price.

“Marks & Spencer has been in turnaround mode for a long time and a lot of its effort has been spent trying to fix things rather than come up with new ideas. The Ocado deal is different as it is new territory for the group. Getting this venture off to a strong start could fuel optimism that the retailer is still capable of moving with the times rather than sinking into quicksand.”

Richard Lim, Retail Economics

“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.

"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.

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"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."

Clive Black, Shore Capital

"The Coronavirus crisis is dealing structural blows to M&S financial plans for FY2021; as with the majority of the discretionary retail and hospitality industry in the UK, the current year is an earnings wipe-out, it just remains to be seen where the PTP dart settles. We are pleased in this respect to see trading and cash flows ahead of management’s spring 2020 scenario, the latter being particularly important as it supports the ongoing liquidity, which we believe to be good, and so solvency of the business, which we also view as sound.

"Within such contexts, M&S is pressing on with difficult decisions around demonstrably necessary change, to make it a survivor of this crisis, one with a better culture, streamlined structures, better capabilities in-store and online and so the grounds to be more confident of earnings rebuild from the FY2021 nadir. Indeed, we see more responsibility in seeking to guide the shape of PTP and EPS from FY2022-25 than the fog of FY2021.

"In these respects, therefore, such difficult decisions from M&S are necessary and improve the chances of sustaining still high employment levels, economic activity, positive operational gearing and free cash flow generation in time."

Kate Ormrod, GlobalData

"Having strived to turn around the business for so long, COVID and its resultant shopping habits have forced M&S’s hand to make more drastic changes, with headlines today focusing on the retailer’s history-making 7,000 job cuts over the next three months as it battles with the shift to online.

"A revenue performance ahead of its scenario plans is somewhat encouraging, however given the trading turbulence experienced on the high street caution is rightly the overriding mindset at M&S, especially given the hard work that lies ahead."

© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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