M&S shoppers are braced for taxes to rise following a pre-budget speech by Rachel Reeves yesterday, according to the retailer’s chief executive.
Stuart Machin said feedback from customers showed the Chancellor’s speech had done nothing for confidence and instead left them “very worried”.
Reeves used the ‘scene setter’ speech ahead of the 26 November budget to warn “we will all have to contribute” to getting the economy on track, and resisted a call to recommit to a manifesto pledge not to raise taxes for working people.
Machin said: “It is very unusual for the Chancellor to do this type of speech ahead of the budget and I think what our customers took from it – talking to people over the last 24 hours – is they are expecting some kind of tax increase.
“We do talk to customers. We have a collective, which means we have a few thousand customers on speed dial, so we can ask for their feedback. And we also survey 1,000 customers every month.
“There’s a couple of callouts from the data and feedback we had yesterday. The first is when we talked to those customers, it does say that they’re worried about rising costs. They did get more worried following yesterday’s speech.
“They’re very worried about tax rises. And as we know from other polling, they think things are heading in the wrong direction.”
Machin said his own biggest fear was tax increases that would impact customers.
“I probably most fear anything that’s just going to hit our consumer, our customers’ pockets or the everyday economy,” he said.
“That wouldn’t be a growth strategy in my view.”
Machin spoke as M&S announced its half-year results to 27 September, revealing extended producer responsibility regulations along with employer National Insurance increases had cost the business £50m.
He urged the Chancellor to impose “no more regulatory burden” on retail, which also faced having to install “monstrosities” in stores under the deposit return scheme.
“Just setting up these big, huge monstrosities in our stores costs nearly £30m, and running them every year costs another £6-7m,” he said.
“And when I see them in other markets like the Republic of Ireland, breaking down every 30 minutes – everyone spends all their time running around trying to repair these huge machines in stores that take up store space, and that’s significant cost.
“And there’s a lot of other things coming our way, whether it’s the Employment Rights Bill et cetera.
“So I think freeing up business for growth and freeing up some of these headwinds coming our way and rethinking that will be really important.
“My summary is we’re preparing for everything. There’s a lot in our control. It is a pretty tough environment, but I would like to see the Chancellor really commit to her plan of growth, not more added taxes.”
M&S’s first-half results revealed the cyberattack that sent its systems haywire in April had cost the retailer £101.6m. The first £83m related to immediate incident systems response and recovery, with the remaining £18.6m stemming from third-party costs, predominantly for specialist legal and professional services support.
Further charges of around £34m are expected in the second half, taking total costs of the cyberattack to £136m.
Despite a £100m insurance payout, M&S’s pre-tax profits fell 55.4% to £184.1m, driven down by lower online sales and increased stock management costs in Fashion, Home & Beauty, as well as higher markdown and waste in the Food division.
Food sales rose by 7.8%, while the division’s operating profit fell 59% to £89.1m, as margin fell from 5.1% to 2%. The margin decline was largely down a higher level of markdown and waste caused by manual stock allocation.
“With systems now restored, markdown and waste have reduced, and operational metrics and gross margins are closer to normal,” the trading statement said.
Fashion, Home & Beauty sales were down 16.4%, while adjusted operating profit fell by 81% to £46.1m, as margin dropped from 12% to 2.7%.
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