M&S warns of ‘gathering storm’ of falling demand as shoppers’ living costs rise

MARKS & SPENCER has warned it is facing a “gathering storm” as it braces for a fall in customer demand as cost of living pressures worsen.

The retailer posted a 24pc slump in profits to £205.5m in the six months to Oct 1, as Archie Norman, the chairman, said the business was in the midst of a “consumer crunch period”. Mr Norman said: “We all of us have got to run faster up the down escalator.”

It comes after revenues rose 8.5pc to hit £5.5bn in the first half of the year, with food sales up 3pc and clothing and home sales up 4.2pc.

M&S grew its share of the clothing and home market for the first time in a decade. However, M&S shares slipped more than 4pc as it said its margins were squeezed after it absorbed some of the higher costs of groceries rather than putting up prices for customers, and faced steeper clothing costs.

The retailer said profits in its food business were down 42pc, after costs surged 11pc in that division in the first half of the year, while it raised prices by 8pc. In its clothing business, it has upped prices by around 7pc, but said it expects to have to raise them again, due to the dollar strengthening.

Stuart Machin, the chief executive, said: “All the signals are that it’s going to get tougher, the cost of doing business is going to get higher because of energy [prices], and it looks like consumers are going to be struggling because of the continued cost of living crisis and also higher interest rates.”

M&S said it was dealing with the “most marked rise in the cost of doing business for many years” which, combined with pressures on customers, was “creating pressure on margins industrywide”. It called for government help for retailers on business rates in the fiscal statement next week.

M&S said it was not making a decision on whether to resume shareholder payouts until the end of the year, given it was entering into a period of uncertainty and expected a “material contraction” in customer demand next year.

However, M&S suggested that its 30m customers might be more resilient in a downturn, given they have on average slightly higher incomes and are a little older.

Meanwhile, 30pc of customers have already done their Christmas shopping, M&S said, a rise from previous years, which it said was down to people being “determined to protect their Christmas” and seeking to spread out costs.