The retail landscape is undeniably challenging today. Yet, a significant deal this week might indicate a promising future for fashion demand, not merely due to the box office success of “The Devil Wears Prada 2,” which has revived interest in the chic styles showcased in the film.
In a major property acquisition this week, Marks & Spencer has agreed to purchase a 437,000 square-foot online shopping distribution center in Lichfield, Staffordshire, for £67.5 million. This facility was previously unused by online competitor Asos.
Alexandra Jackson, who manages the Rathbone UK Opportunities Fund, remarked on the importance of this deal, emphasizing its impact on the involved parties or those speculated to be involved.
This strategic move not only strengthens the financial position of the embattled Asos but also underscores M&S’s commitment to expanding its market presence. The retailer aims to double its online sales in fashion and beauty to reach a target of £3 billion.
As consumer preferences shift towards ‘conversational e-commerce,’ the importance of quick delivery and a wide range of options is set to grow. Increasingly, shoppers will seek advice from artificial intelligence on purchases like dresses or lipsticks.
Jackson noted, “Asos invested over £100 million in this site, yet Marks & Spencer is acquiring it for just two-thirds of that amount.”
Best foot forward: Primark collaborates with singer Rita Ora, pictured above
‘We expect the Lichfield centre will help Marks start to close the profit margin gap against Next, which has long benefited from higher levels of automation in its supply chain.’
Jackson’s observation underlines Next’s online model. It is more than a shop; it is a ‘retail technology and logistics platform’. The company offers its own brand and host of others, including Gap and The White Company. Its international online sales were 51 per cent up last year.
Next also attracts more footfall to its stores through its click-and-collect service. BOPIS – buy online, pick up in store – is a particular passion for British shoppers.
Meanwhile, it has been reported that Primark, the fast fashion arm of Associated British Foods (ABF), was also eager to be the next owner of the Lichfield logistics hub.
Primark is set to join the FTSE 100 when it is spun off from its parent firm next year. Before then, or so it seems, it is keen to tackle its lack of an online offer.
Internet purchases account for about 38 per cent of total UK consumer sales, although shopping in stores returned much more strongly than predicted post-pandemic, particularly among Gen Z.
This 14-29 age group likes the social aspect of a trip to the High Street or shopping centre.
Among this younger clientele and others, the ability to spend is set to be curbed by rising inflation, driven by higher energy costs linked to conflict in the Middle East and the prospect of two interest rate hikes. At the same time, the rewards of the online fashion market remain considerable.
The stakes are so high that Chinese fast-fashion giants Shein and Temu are engaged in a London court battle over copyright infringement claims, highlighting the rewards that can flow from dominating the sector.
So which UK retailers can confront these challenges and emerge as long-
Life’s a beach: TV presenter Rochelle Humes
MARKS & SPENCER
This £6.3billion quintessentially British name (which boasts TV presenter Rochelle Humes on its books) aspires to supplant the Spanish business Zara in the ultra-competitive catwalk-copy field.
This campaign is being waged through limited-edition ‘drops’ of fresh styles: the summer collection was unveiled this month at a haute-couture-style event in Ibiza.
This game plan, masterminded by chief executive Stuart Machin and chairman Archie Norman, represents a comeback after the cyber attack in April last year that forced the suspension of online orders.
At 319p, M&S shares remain below their level before the hack, but have risen by 88 per cent over the past three years.
In November 2022, when the price was 124p, I followed my own advice to commit some cash to the turnaround of Marks, where I get many of my clothes.
The consensus expectation for full-year pre-tax profits for 2025-26, to be announced next Wednesday, is £655m, reflecting the damage caused by the hackers, but analysts forecast a rebound for 2026-27.
Most analysts rate the shares a ‘buy’ with an average target price of 421p. Why wouldn’t I continue to hold, while spending some of my profits on the next ‘drop’?
NEXT
Next specialises in exceeding expectations. Full-price sales for the first quarter were projected to be 4 per cent higher, for instance, but the increase was in fact 6 per cent, as we learned earlier this month.
At the time, chief executive Lord Wolfson acknowledged the problems arising from conflict in Iran. For the moment, though, Next prices may go up abroad, but not in Europe and the UK.
Wolfson’s measured assessments of conditions, and his creation of an online behemoth, have won him a huge fan base that has enjoyed heart-warming gains.
When he was appointed in April 2001, the share price was 909p. It has grown to 12,405p, although fears that even Next will not be able to shrug off economic pain have caused an 8 per cent decline this year. Most analysts think it is worth holding at this level, yet Berenberg argues Next is a ‘buy’ with a target price of 18,000p.
Further weakness may mean I add to my tiny amount of Next shares. The design of its website and app may not be edgy, but the fulfilment makes up for such omissions.
ASOS
Asos shares received a boost from the distribution centre news, but at 238p they are still 95 per cent lower than at the height of the pandemic online boom in 2021.
The firm is at the beginning of a turnaround under chief executive Jose Antonio Ramos Calamonte, who took over in 2022 charged with winning back the twentysomething customers who used to regard Asos as a cult brand.
Deutsche is among the analysts who are persuaded that Asos can regain its hip reputation, considering the shares to be a ‘buy’, with a target price of 400p.
Yet other analysts are minded to ‘hold’, waiting for more progress on the Calamonte comeback campaign, and are also aware that Gen Z has developed a taste for ‘pre-loved’ (second-hand) pieces sourced from platforms such as Vinted.
Vinted is a Lithuanian company, but a slice of this £7billion business features in the portfolio of a UK investment trust, Baillie Gifford’s Schiehallion.
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