Changes to M&S supply chain could “dramatically improve” gross margins

June 18, 2014

Research analysts looking into the supply and sales processes at M&S have suggested that with a change in systems, supply chain and buying processes, the retail giant could dramatically improve its general merchandise gross margin. They also noted that when compared with peers in the same sector, gross margins in apparel could likely be much higher than the average that M&S has historically delivered.

M&S’s general merchandise was in negative figures in terms of gross margins in the past six months, performing worse than expected by analysts with particularly poor performance in clothing sales. The company’s projected results for the coming year include general merchandise gross margin expansion, and have suggested that around 75 per cent of this will come from improvements to sourcing, while other efforts will be focused toward better markdown management. M&S currently expects a 20-35 per cent product increase in direct sourcing.

Bernstein research analysts Jamie Merriman, Anthony Sleeman and Ruper Galway-Cooper, however, believe M&S will struggle to deliver improvements in profit, considering the current UK economy and price-sensitive shoppers. In the report, they commented: We believe the real question for M&S over the coming 18 months is whether the company is able to turn around the general marketing division, which has underperformed the overall UK apparel market for several years.”