Marks & Spencer has been usurped by online rival Asos in what has been described as the high street’s “Tesla moment” as old retailing stalwarts get overtaken by new online rivals.
The 17-year-old fashion website has been biting at M&S’s heels for several months but on Friday its shares gained 2%, boosting its market value to £4.89bn, making it a more valuable business than the 133-year-old high street giant, now worth £4.88bn, according to Reuters data revealing the number of shares in issue.
Earlier this year, Cantor Fitzgerald analyst Mark Photiades predicted Asos would leapfrog M&S as the website, aimed at fashion hungry twentysomethings, grows in stature just as traditional store groups struggle to grow.
Earlier this month, M&S’s new chairman, Archie Norman, accused the struggling store chain of “drifting” for more than 15 years: “This business has been drifting, underfulfilling its customer promise not for five years, not 10 years but 15 years and maybe beyond.”
The shift in retail power is being compared with the automotive industry, where the electric carmaker Tesla sped ahead of the 114-year-old Ford Motor Company in April to become the US’s most valuable car manufacturer. Similarly, the online retailer Amazon is now worth nearly twice as much as Walmart, after overtaking the American grocery chain in 2015.
Photiades said that 20 years ago, when online shopping was in its infancy and before Asos was established, M&S had a market value of £16.9bn. When Asos floated on the stock market in October 2001, it was valued at £14m, compared with £7.8bn for M&S.
The market valuation of a company reflects expected future earnings: M&S remains bigger both in sales and in terms of profit. Asos recorded sales of £1.9bn last year, compared with £10.6bn at M&S. Profits were £80m and £176.4m, respectively.
Profits have been going backwards for several years at M&S despite its position as the UK’s biggest clothing retailer. It was making full-year profits of more than £1bn in 2008 but that figure has been whittled down by a long running slump in clothing sales.
Since taking over a year ago the M&S chief executive, Steve Rowe, has stabilised the performance of its clothing arm and shut loss-making stores overseas. Unlike Asos, Rowe also has to grapple with the challenging economics of its large store portfolio as sales migrate online and fewer shoppers frequent the high street.
Asos brags that it puts around 5,000 new items on its site each week – the equivalent of an entire Oxford Street shop – and is constantly adding new features to the site such as visual search, which allows customers to upload photos from social media to search for a similar outfit.
Rowe says M&S’s “destiny” also lies online, setting a target ofone-third of sales online by 2022. But he warned M&S will need to plough investment into its infrastructure to reach it.
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