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M&S kicks off delivery partnership with Ocado

Published: 06:16 01 Sep 2020 EDT

Marks and Spencer Group PLC - M&S kicks off delivery partnership with Ocado

Marks and Spencer Group PLC (LON:MKS) has formally kicked off its delivery partnership with online grocery giant Ocado Group PLC (LON:OCDO) which will see around 6,000 of its items available for online delivery.

The tie-up will see M&S products replace around 4,500 items from Ocado’s former partner Waitrose, although the new partnership may take some time to build up as customers decide to make the switch with Ocado and start buying from M&S rather than Waitrose.

READ: Marks & Spencer to chop another 7,000 jobs as sales tumble

The £1.5bn deal, which was originally announced last year, forms part of M&S's latest attempt to shift online and offset problems at its struggling clothing business, which has been hit hard by the pandemic, as well as fulfil plans to double the size of its food business, which is currently worth around £6bn.

M&S has already swung the axe in an attempt to turn the business around, unveiling plans last month to cut a further 7,000 jobs across all parts of the business as part of its streamlining process.

The company is in the middle of a restructuring and originally planned to see 950 jobs go, but it said there has been a material shift in trading since May when stores reopened after the coronavirus pandemic lockdown.

The news was accompanied by some bleak figures for the pandemic period, which saw sales fall 13.2% in the 13 weeks to August 8, 2020, as a 38.5% decline in Clothing and Home offset a 2.5% improvement in food.

Deal good timing for M&S, says broker

In a note on Tuesday, analysts at M&S house broker Shore Capital said the tie-up was “good timing” for the high street stalwart and that the partnership will offer “added benefits from entrance to a growth channel where it has been absent, exclusive buying synergies and the joint venture’s avoidance of payments to Waitrose”.

“More broadly, we see progress in the online grocery channel, which will hopefully go smoothly…kicking into potential Groupwide development for M&S, where the business has a robust and relevant store-based Food business, travel and shopping centres aside at this time, whilst as recent announcements has shown, a now complete management team is working at pace to modernise the business, root & branch to deliver a fit for purpose, growing and cash generative operation”, the broker added.

Analysts also said the deal represented “a notable step forward” in the M&S transformation plan, with entering the online food channel a “big box…to tick on the ‘to-do’ list”.

“Equally, if successful, then maybe the gargantuan stock rating differential between Ocado Group and M&S may narrow, bearing in mind that virtually all of the sales and [earnings] of the former is contained with Ocado Retail”, they concluded.

Shares in M&S were 4.4% lower at 106.3p in late-morning trading on Tuesday, while Ocado rose 0.4% to 2,508p.

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