M&S warns of ‘gathering storm’ as higher costs bite

Marks and Spencer has warned of a “coming storm” of higher costs for retailers and pressure on household budgets as it reported a fall in profit for the first half.

The high street giant said trading was set to become “more challenging” after announcing its profits fell 24%.

It said “all parts” of retail would be affected by Britain’s economic climate and adding unprofitable businesses would go bust.

However, M&S said its business could “prove more resilient” because of its clientele.

Many British companies are affected by the rising costs of energy, wages and raw materials.

Consumers are also cutting spending and the Bank of England has warned the UK is facing its longest recession on record.

M&S said the “combined impact of cost of living pressures” and increased cost of doing business “created pressure on margins across the industry”.

However, the retailer said that while M&S is prepared for the difficult times ahead, it is in a stronger position than others with a high number of its 30 million customers “in above-paying jobs or in retirement”.

“Though we therefore expect a significant drop in market demand, the M&S customer may prove more resilient than some market commentators are implying,” the company said.

“A high proportion of them are in above-average paying jobs or retired. Despite the recovery in demand since the pandemic and the return to travel, these age groups have become more isolated and many retain a savings cushion.”

According to M&S, group earnings rose 8.5% to £5.5 billion in the six months to October 1, with sales of clothing and homes doing well.

But its full-year profits would be hurt by the exit from Russia and the end of tax breaks granted to companies by the government during the pandemic.

“Across all M&S markets, it is highly likely that conditions will become more difficult in 2021,” the company added.

“However, the sweeping changes that have been made in recent years, combined with a reinvigorated product offering and value for money, offer some protection from the oncoming storm.”