MARKS AND SPENCER: Share Set Back Stuns City

Date Posted: 10 July 2008

It takes a significant shift in consumer confidence to truly affect the city, but when Marks and Spencer (seen as one of the key indicators of consumer sentiment) announce a drop in sales, share prices invariably deteriorate at a phenomenal pace.

Marks and Spencer saw share price drop 24.5% after the announcement at the beginning of July and Sir Stuart Rose must have felt that all his hard work had been undone – surely history is not going to repeat itself for the retailer?

Yet that is the potential scenario facing Marks and Spencer. With the current financial crisis that the UK finds itself in, the retailer like many, is finding that the global crunch is hitting hardest at home. As consumers become increasingly conscious that it is now time to tighten their spending budgets, it is the European discounters (such as Aldi) that find themselves in the strongest position.

‘Buzz’ scores for the brand are currently at the second lowest position they have ever been since BrandIndex was launched in October 2005, at 6%. Interestingly, the lowest ‘Buzz’ score for Marks and Spencer occurred in January this year after the company announced poor trading over the Christmas period (‘Buzz’ for the brand dropped to -2% at this time).

Sir Stuart Rose noted that the current woes in the UK market are likely to be long term rather than resolved over several months. However, as Marks and Spencer has shown time and time again; if any company can weather the current financial storm – they can.

Worrying Trends?

The announcement from Marks and Spencer led to reverberations across the retailer sector: Sainsbury’s and Next just two of the retailers who saw their share price drop immediately after Marks and Spencer. The second chart here shows ‘Buzz’ for Marks and Spencer (High Street Fashion) vs. Sainsbury’s and Next.

The entire Marks and Spencer business appears to be affected by the recent drop in share price, with the brand’s Supermarket, High Street Retail and High Street Fashion ‘Buzz’ scores dropping 14%, 13% and 12% respectively between the 1st and 3rd July 2008.

For Sainsbury’s it appears that the longer trend for the brand is of greater concern than the recent dip in share price. Whilst Index scores for the brand keep on improving, the ‘Buzz’ trend for the Supermarket brand conversely continues to be downward.

The news for Next seems slightly more positive at present, with the brand seeing little effect to its ‘Buzz’ score despite the stuttering share price. For Next, the big challenge will be to achieve a positive summer. If the brand can keep its head above water, then it might just survive the current crunch unscathed.

Richard Wood, BrandIndex Research Executive

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