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Boohoo more valuable than M&S – a sea-change encapsulated


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Boohoo more valuable than M&S – a sea-change encapsulated

From a purely journalistic standpoint it is now a de facto cliché to refer to Marks and Spencer as the “high street bellwether”, yet that is the status it has held for so many decades.

The once mighty monolith was the first British retailer to reach a market capitalisation of £1bn and has been a mainstay of shopping districts up and down the country for as long as anyone can remember. Yet, incumbents eventually fall, and today’s news provides a stark picture for the brand’s future.

I point again to M&S today because the stock market value of challenger online fashion firm, Boohoo, has just overtaken that of ‘sparks’, after enjoying a huge year-on-year increase in sales for the weeks before Christmas Day. Boohoo’s revenue rose 44% during that period, and the financial report disclosing that fact caused shares to climb 5% to 334p, while M&S shares were down 2% to 185p and a market capitalisation of £3.6bn.

But things get worse. The credit rating agency Moody’s today added insult to injury, claiming it was mulling cutting the M&S investment rating to “junk” status. In case that is in any way unclear: that means they advise investors to steer well clear of the shares. The firm has already been taken down a peg in the last year, having dropped out of the FTSE 100 for the first time since that index was created. It’s the slow and painful decline of a 136-year-old brand that generations of people have known.

Boohoo on the other hand, appeared in 2006 in Manchester, and has captured a big chunk of the teenage and early-twenties market, a generation which is accustomed to fast fashion, low prices, and making purchases on their phones for home delivery.

But Boohoo’s success is not just down to its product range or snazzy logistics, it has also been a pioneer (at least from the marketer’s perspective) in its eschewal of glossy magazines and television advertising in favour of social media. It has made extensive use of Instagram posts for a fee by ‘influencers’.

These can be anything from singers and actors to whatever Kim Kardashian’s profession is, but also simply private individuals who have painstakingly built large followings of their own, becoming famous for YouTube makeup tutorials or nomadic travelling lifestyles.

It’s the new way, and such a difference in sales performance, investor interest, and more importantly, business model, suggests things may get yet messier as the retail world realigns for the technology of the age. Which never stops advancing.

Inflation falls fast after festive discounting

The rate of inflation is at its lowest for just over three years, after retailers discounted hard during December, according to the Office for National Statistics. While falling inflation will be good for people’s purchasing power vis-à-vis their wages in the short term, it is overall a sign of economic weakness at the end of 2019.

The City had anticipated inflation somewhere in the region of 1.5%, but while basis points may seem insignificant to the average punter, they mean quite a lot when you scale them up to measurements of a nation’s economy. That’s why inflation of 1.3% in December means the Bank of England will now be under even greater pressure to cut interest rates when the Monetary Policy Committee convenes at the end of January.

It is the latest in a small string of negative results concerning economic performance at the end of 2019, and while it is possible that the paralysis of parliament, followed by a particularly bruising general election may have been a significant dampener, we cannot discount the possibility that it’s a symptom of a more deep-rooted malaise in the economy.

Successful emergency landing for Flybe

While still not fully out of the woods, it does seem as though Europe’s largest regional airline will survive. Government ministers have arrived at a deal with the firm’s shareholders which will keep its planes in the air for the foreseeable future. The deal reportedly features a loan worth £100m and the postponement of £106m in air passenger duty which Flybe currently owes.

There are more hands on deck than just the government though – the owner of the Flybe, Connect Airways, has agreed to commit an unspecified number of millions of pounds to take up the slack of the firm’s existing losses.

The putative arrangements have ruffled feathers elsewhere in the industry. IAG, which owns British Airways, has described the proposed bailout arrangements as a “misuse of public funds”, with the CEO Willie Walsh accusing Virgin (which heads the Connect Airways consortium) of asking taxpayers to underwrite their “mismanagement of the airline”.

It’s a classic case of the libertarian free market vs. paternal state: do we save a failing company to protect the jobs and the industry, or do we let market forces run their course?

Answers on Twitter, if you feel strongly either way…

 


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