UK’s retail sector in bad shape; job cuts continue at major firms

Marks & Spencer (M&S) will cut a further 7,000 jobs, it said on Tuesday, as the COVID-19 crisis deals another blow to Britain’s beleaguered retail sector.

“It is clear that there has been a material shift in trade and while it is too early to predict with precision where a new post-COVID sales mix will settle, we must act now to reflect this change,” M&S said.

Clothing and home trading in its stores remained well below last year though online and home delivery were strong, said the retailer, which has a UK workforce of about 78,000.

The 136-year old M&S is seeking to reinvent itself after decades of failed attempts. In May it said the crisis would indelibly change its business and that it would accelerate its turnaround plan.

M&S said the crisis had shown it could work more flexibly and productively with more employees multi-tasking and switching between the food and clothing and home divisions. Its use of technology has also increased.

Last month M&S shed 950 store management jobs. Its latest cuts will impact its headquarters, regional management and UK stores over the next three months.

The cuts add to thousands already announced by other major British retailers, including Boots, John Lewis, Dixons Carphone and WH Smith. M&S expects a significant proportion of its cuts to be through voluntary departures and early retirement. Shopworkers’ trade union Usdaw called for urgent talks.

“These proposals are an important step in becoming a leaner, faster business set up to serve changing customer needs,” CEO Steve Rowe said.

M&S shares were down 2.8%, extending 2020 losses to 48%.

The firm said it was retaining a cautious approach to planning for the balance of the year.

Group sales were down 19.2% year on year in the 19 weeks to August 8, which included part of Britain’s lockdown period, with clothing and home sales down 49.1% and food sales down 1.1%.

Clothing and home sales were down 29.9% in the eight weeks since stores reopened. Store sales were down 47.9%, while online sales were up 39.2%.

Food stores, which traded throughout the lockdown period, saw sales increase 2.5% in the latest eight weeks. M&S said it was on track to launch an online food service next month through its partnership with Ocado.

The financial health of British households deteriorated in August at a faster pace than last month, in an unpromising sign for the economic recovery from the COVID-19 pandemic, a survey showed on Monday.

The Household Finance Index from data company IHS Markit fell to 40.8 in August from 41.5 in July, dragged down by the biggest drop in job security since 2011.

A wave of lay-offs is already underway and economists fear worse will come when the government’s furlough scheme closes at the end of October.

Although economic output collapsed by a historic 20% in the second quarter of 2020, the official unemployment rate has not risen from its pre-pandemic level of 3.9% due to the furlough scheme as well as quirks in the joblessness definition.

Tax data suggests businesses have shed more than 700,000 staff since the start of the lockdown.

Earlier this month, Bank of England Governor Andrew Bailey said the central bank’s projection for an unemployment rate of 7.5% at the end of this year was a “very bad story” for the British public, and warned that it could turn out worse than that.

“Overall, the data hint at some worrying trends when put in the context of the significant recession facing the UK,” Lewis Cooper, an economist at IHS Markit, said.

“Incomes from employment fell sharply again, while the survey measure of job security perceptions remained firmly in negative territory as the winding down of the government’s furlough scheme looms.”

Other indicators of the consumer economy like retail sales have shown a rapid rebound since the COVID-19 restrictions were loosened, although evidence from businesses has been mixed. The IHS Markit survey of 1,500 adults took place from August 6 to August 9.

Meanwhile, London’s FTSE 100 fell on Tuesday as lower oil prices and a clutch of lacklustre earnings reports sparked a round of profit-taking, while Marks & Spencer rose after announcing new job cuts.

The blue-chip FTSE 100 was down 0.8%, with losses in energy, financial and industrial stocks pulling the index back from what had so far been its best month since April.

Reuters