M&S warns of 'gathering storm' as higher costs bite

Marks and Spencer has warned of a "gathering storm" of higher costs for retailers and pressure on household budgets as it reported a fall in profits for the first half of the year.

The high street giant said trading would become "more challenging" after it revealed its profits dropped by 24%.

It said "all parts" of retail would be affected by the UK's economic climate, adding unviable firms would go bust.

But M&S said its business could "prove more resilient" due to its clientele.

Many UK businesses are being hit as the costs of energy, wages and raw materials surge.

Consumers are also cutting back their spending and the Bank of England has warned the UK is facing its longest recession since records began.

M&S said the "combined impacts of the cost-of-living squeeze" and the increased cost of doing business was "creating pressure on margins industry-wide".

But the retailer said that while it was prepared for tough times ahead, M&S was in a stronger position than others due to a high number of its 30 million customers being in "above average paid jobs or retired".

"Whilst we are therefore planning on a material contraction in market demand, the M&S customer may prove more resilient than some market commentators assume," the company said.

"A high proportion of these are in above average paid jobs or retired. Despite the recovery in demand since the pandemic and return to travel these age groups shielded more and many retain a savings cushion."

M&S said group revenue rose by 8.5% to £5.5bn in the six months to 1 October, with clothing and home sales doing well.

But it its full-year profits would be hit by its exit from Russia and the end of business rates relief, which was given by the government during the pandemic.

"Across all M&S markets it is highly likely that conditions will become more challenging in 2021," the firm added.

"However, the far-reaching changes made over the past few years, together with a reinvigorated product offer and strong value for money credentials provide some insulation from the gathering storm."