M&S gives fresh hope to UK's battered high street

Apr 1 2009 by Iain Laing, The Journal

MARKS & SPENCER saw its shares recover yesterday as it insisted that steps to resolve last year’s “self-inflicted injuries” were paying off with a smaller than expected fall in sales.

Sir Stuart Rose, chairman of the retail giant, admitted the group had made mistakes with its food offering in particular, but said actions to cut prices had helped stem the sales decline to 4.2% in its fourth quarter. Experts had been expecting a like-for-like sales plunge as much as 7%.

The M&S boss gave hope for Britain’s battered high street, saying conditions had stopped deteriorating. “It’s tough out there, but it hasn’t got any worse,” he said. “People have to eat and also want to have a bit of fun – they want to be cheered up,” he added.

M&S – often seen as a bellwether for the wider retail sector – saw the decline in like-for-like food sales ease to 3.7% in the 13 weeks to March 28, from a drop of 8.9% the previous quarter. General merchandise, which includes clothing, also put in a better performance, down 4.8% in the three months.

But the sales cheer is not expected to save M&S from a sharp drop in full-year profits – forecast to plunge to £592m from more than £1bn the year before.

M&S has suffered badly as cash-strapped customers have defected to cheaper rivals. A dire Christmas saw like-for-like sales drop 7.1% in the third quarter, its worst trading for almost a decade.

It added to the gloom by announcing 1,200 job cuts under plans to shut 25 Simply Food outlets and two main stores.

Younger customers have been attracted back to the shops, with nearly 250,000 more customers under the age of 35 in the fourth quarter, according to M&S.

Young mums in particular were helping boost sales of children’s clothing, while womenswear was also selling well, thanks in part to the recent launch of the Portfolio range. But its lower pricing is set to cost the group, with annual UK profit margins expected to be around 1.75% lower than the previous year.

Its sliding profits and sales pain has put Sir Stuart under pressure in recent months, as has increasing concern over his dual role at the group. He brushed aside mounting calls for M&S to appoint an independent chairman.

Retail analyst Philip Dorgan praised “innovation, better ranging and sharper pricing” for the food sales result.

However, he warned of structural problems in the food division and Simply Food offering that could continue to hold it back against rivals.

“Food is structurally challenged – it has lost its competitive edge, it is too small, its prices are too high, its supply chain is not reactive enough and its stores are in the wrong place,” he said.