Nightmare on the High Street

It’s been a tough week on the High Street. Already under pressure from the growth of online retailing and younger, trendier upstarts, big brands like Marks & Spencer and John Lewis are being crippled by the coronavirus lockdown.

Once the queen of the high street, the latest figures from M&S for the year to March showed another big downturn with pre-tax profit falling to £67 million from £84 million last year. The stores giant also took a one-off hit of £336 million, mainly because customers stopped buying clothes once the lockdown took grip. While sales from its food halls, barring restaurants, were only down 4.6% in the six weeks to 9 May, its clothing and home sales dropped by an eye-watering 75%. Clothing sales have collapsed to such a low that it has been left with some £500 million of spring and summer stock. Just storing the clothes until next year will cost £145 million. Other one-off costs include food stuffs which are now unsaleable.

John Lewis is also struggling. All its stores remain closed across the country. Many fear big department stores could be among the last things to reopen, and each store would take an average of four weeks to become fully operational again while allowing for social distancing.

Sales at Waitrose rose by 8% due to home delivery during lockdown. And while John Lewis stores saw an 84% surge in online ordering, overall sales were down by 17%. The outlook may get even worse as John Lewis’s management fears there will be a 35% decline over the next year.

Almost nothing is sacred. John Lewis, so famous for its Christmas ads, plans to slash the budget for marketing by £100 million. M&S is also prepared to take drastic measures planning £1 billion in savings. Some of this will come from its scrapping of dividends, with investors told not to expect payouts in 2021 either. However, another £500 million’s worth of saving will come from cuts to marketing, logistics and recruitment. While M&S’ chief executive, Steve Rowe, has played down talks of job cuts it is hard to see how savings of this scale could be made without them.

More store closures also seem inevitable. M&S was already planning to shut some 120 stores prior to the crisis and these plans may be brought forward. Leases on other shops are also apparently now up for renegotiation. The John Lewis Partnership has yet to announce any closures but chief executive, Sharon White, has refused to rule them out. She also said she hopes the shift to shopping online will stick around after the lockdown ends.

John Lewis has always had a strong online presence, and growing online sales has always been part of its long-term strategy. In that respect, the pandemic has acclerated an already stated ambition. But the group will need to improve and update its online services to make shopping more conducive to the customer.

M&S is moving in the same direction. Delivery services are being expanded with 142 stores across the country now allowing a range of items to be ordered and delivered via Deliveroo which guarantees 30 minute delivery times. Ocado, which once looked an expensive flop, could also come into its own. There are plans to expand it services to include delivery of clothes as well as food. Still, this addition may turn out to be something of an afterthought since financial pressure will almost certainly push the company to focus on food which has far higher margins than its clothes business, generating roughly equal profits on about half the total revenue. Rowe has already declared it is “jumping three years” with regards to his plans to cut down the number of clothing lines sold.

Whether these changes will pay off remains to be seen. Nick Bubb, leading retail analyst of Bubb Retail Consultancy, says: “At best, they may be able to exploit the situation to accelerate the changes they need to make to become more profitable. At worst, they may just be accelerating into a brick wall.” Indeed, as Bubb pointed out, making the right calls will be trickier than ever given the fact that the coronavirus may transform the way people shop in ways we have yet to fully reckon with.

Regardless of the exact nature of the shift online, the outlook for these once High Street goliaths looks grim. It is inevitable that thousands of jobs will be lost from these companies as they shift gear or face closure. Another tisk is being gobbled up by new retailing giants like Amazon which, after its takeover of Whole Foods, is still on the prowl for new opportunities.