Obsession with M&S is pants

In: Uncategorized

8 Jul 2008

The following comment by me appeared in yesterday’s issue of Fund Strategy:

It may be that many journalists wear Marks & Spencer underwear – Jeremy Paxman famously wrote to the company’s chief executive complaining about its quality – but that does not excuse the media’s obsession with the retailer’s fortunes.

Last week’s profit warning from the middle class’s favourite retailer led to a 25% fall in the share price and widespread gloom about recession. But while M&S; investors may have reason to worry about its share price it is wrong to draw sweeping economic conclusions from its troubles.

There are three reasons why it is wrong to see M&S;’s plight as an indicator of economic problems. First, M&S; accounts for only a small part of the economy. Chris Dillow, an economist who runs the Stumbling and Mumbling blog, estimates that M&S;’s value added is less than 0.2% of Britain’s GDP. It therefore represents only a tiny proportion of economic activity.

He also points out that the Game group reported spectacularly good results last week. But it does not follow from these results that the economy is booming. Some companies do badly and others do well in difficult economic circumstances.

Second, the economy is more than a collection of firms. That is why John Maynard Keynes wrote of the “General Theory”. He was concerned about the behaviour of the economy in general rather than that of individual companies. Many economists have realised that the economy consists not just of companies but also of the relations between them as well as other factors such as consumers, workers and governments.

Finally, contemporary economic discussion focuses far too much on consumption. It obsesses over such issues as branding, shopping and consumer confidence. News items on the economy are virtually guaranteed to feature a shop. At the same time the production side attracts relatively little attention. Factors such as return on investment, productivity and profitability are hardly mentioned, despite their central role in economic activity.

Marks & Spencer’s recent stockmarket troubles say a fair amount about the company but little about the wider economy. To really understand Britain’s economic troubles we must look deeper and wider than just M&S.; No single company, even one with as high a profile as M&S;, tells the story of the whole economy.

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