London -Marks & Spencer Group is trying to sell more clothing at full price to lift earnings in its troubled apparel business, but the push is coming at a cost customers are buying less.
The UK retailer said Wednesday that full-price clothing sales rose 2.7 percent in the year through April 1, with stronger growth in the latest six months. The company held three fewer clearance sales and shied away from Black Friday discounting.
“We are starting to stabilise market share and importantly have seen full-price market share growth as we removed excessive discounting,” CEO Steve Rowe said in the statement. “Looking ahead, we will continue our program of self-help in a tough trading environment.”
The move to hold the line on clothing prices contributed to better-than-expected profit for the latest fiscal year but fueled doubts about Rowe’s strategy for setting M&S on a long-awaited path back to growth. The CEO’s focus on stemming market-share losses in fashion has been accompanied by an aggressive store opening program that’s boosting sales in food.
Despite more full-price sales, same-store sales in M&S’s clothing and home business fell 5.9 percent in the fourth quarter, missing analysts’ estimates for a 3.7 percent drop. The comparison was difficult as Easter didn’t take place during the period this year. The shares were down 1.3 percent at 8:08 a.m. in London.
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Marks & Spencer’s focus on full-price sales comes as rival Next is faltering in its drive to lure shoppers away from M&S. Next CEO Simon Wolfson said the company stumbled over the holiday season by trying to get contemporary trends into stores more quickly, neglecting the simple lines prized by core customers of both retailers.
Rowe, by contrast, has been taking a back-to-basics approach by focusing on lower-price staples in an effort to avoid markdowns. Archie Norman, who orchestrated the turnaround of Asda, was appointed as chairman this month.
“M&S’s move to sell more clothes at full price and lower entry-level prices is making for a more profitable operation,” Charles Allen, an analyst at Bloomberg Intelligence, said by phone. “They are doing what they said they would do.”
Underlying pretax profit fell 10.3 percent to 613.8 million pounds ($795.9 million) in the 52 weeks through April 1, the company said. Analysts expected 596 million pounds.
Both M&S and Next have a pricing battle on their hands this year. As a result of the drop in the pound since the UK’s vote to leave the European Union, sourcing costs are rising just as a squeeze on disposable income begins to bite.
M&S expects higher costs will result in gross margins falling by as much as 50 basis points in its food business this year.