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munimula

M&s Costs Rising 6-7% Pa

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The markets are nothing if not slow on the uptake.

Marks & Spencer reported full-year pre-tax profits of £745.7m for the year to April 1, compared to £505.1m last year.

But shares in the group fell 3% to 549p, even though the FTSE 100 was in full-blown recovery mode, closing up nearly 150 points.

So what was the problem?

Profits at Marks and Spencer were well within City hopes.

But the outlook statement seemed to rattle investors.

Chief executive Stuart Rose was his usual modest self, downplaying the recovery and describing the results as “a respectable performance.”

And finance director Ian Dyson warned that costs were rising at a rate of about 6% to 7% a year as higher fuel and energy prices take their toll. He also said that consumers are still nervous of spending amid high oil prices and rising unemployment.

Mr Rose is many things. He’s managed to oversee a remarkable recovery at M&S. He has thrown off any remaining feelings that the group should have sold out to Philip Green two years ago. And he’s also a master of the golden rule of successful investor relations – under-promise and over-deliver.

But he’s not a miracle worker. As Mr Dyson put it, “life is tough in the retail sector.”

We’ve been saying this all year. It’s not rocket science. Consumer confidence is low. Bankruptcies are at record highs. Energy prices are rising, as are taxes, squeezing consumers' disposable incomes.

That means the pool of money available to retailers is smaller. So they have to raise their game in the fight for customers. In other words, competition gets fiercer.

On that note, it’s interesting to remember that Next last week reported that sales at stores open at least a year had fallen by 5.8% in the 15 weeks to May 13. By contrast, same-store sales at M&S rose 6.8% in the three months to April 1.

M&S also improved its share of the womenswear market from 8.6% to 10% over the year. While it’s too simplistic to suggest that all of M&S’s new customers are poached from Next, they do have similar target markets. It goes to show that in the current climate, one retailer’s gain is usually another’s loss.

So times are tough in retail and no surprise - people have less money to spend, so life gets tougher for people who own shops. And yet the City seems to keep hoping for great things from the retail sector.

It’s frankly mystifying. Take the recent sell-off. Miners were the main losers, based on the (simplified) view that if the US raises interest rates, then US consumers will stop buying Chinese goods. If people aren’t buying Chinese goods, the Chinese won’t buy as many commodities. If demand falls, so do prices – and if commodity prices fall, you don’t want to be holding mining stocks.

It’s a logical enough argument – though it does of course depend on your view of how tight commodity supply actually is, and how important the US consumer really is to Asia.

What’s harder to understand is why people who believe this argument will sell miners but not retail stocks. Fine - you can argue that rising interest rates are not good for miners. But they’re not great for retail stocks either.

Rising interest rates mean higher mortgage bills and less cheap credit. We saw how badly the consumer reacted to last year’s slowdown in the housing market – the consequences of a full-blown crash would be much worse.

Sure, if commodity prices were to fall as a result of slowing global growth, then cost pressures might ease a little. But it’s no consolation being able to run your shop more cheaply if no one’s in there buying anything.

Given the choice between owning a mine and owning a shop right now, we’d pick the hole in the ground over the money pit on the high street every time.

And we should rememeber that as manufacturing jobs have declined they have been replaced by public sector and retail. Public sector are now firing (nurses, NHS etc) and the retail sector will be too as they are finding it hard to pass on costs - they will have to cut costs in other ways and therefore will reduce staff.

Unemployment is in an upward cycle and could easily combine with only small interest rises to trigger a massive HPC. It isn't just mortgage debt as in the last crash, this time around there is a massive mountain of unsecured loan and credit card debt which isn't factored into mortgage affordability.

The UK housing market is going to be a very different picture in 2 years time (max)

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It just highlights that the price you pay in the shop is not just about factory gate prices. The stores have to be lit and heated as well. Inflation is on the way up, no stopping it now.

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It just highlights that the price you pay in the shop is not just about factory gate prices. The stores have to be lit and heated as well. Inflation is on the way up, no stopping it now.

Would you shop in a supermarket if you had to shop using torches and dressing up against the cold, if it was cheaper?

Billy Shears

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Would you shop in a supermarket if you had to shop using torches and dressing up against the cold, if it was cheaper?

Billy Shears

If you ignore the torches, don't they call them market stalls?

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If you ignore the torches, don't they call them market stalls?

Buying in a market round my way seems a false economy. Prices are a bit cheaper but I've been bitten a few times by poor quality veg.

Billy Shears

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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