MARKS & SPENCER is to delay the construction of its £67m distribution centre in Bradford as it slashes non-essential spending following a sharp fall in profits.
Britain's biggest clothing retailer said underlying pre-tax profits plunged 34 per cent in the six months to September 27 to £297.8m, down from £451.8m a year earlier as customers cut back on spending. Executive chairman Sir Stuart Rose warned that t
rading will be tough over the next 18 months.
"Some people are trading down a supermarket, particularly among more occasional customers," he said. "Now we are in a recession, but we're well equipped to deal with it. It will be a tough year and a half ahead."
The group is slashing capital expenditure from £1bn in 07/08 to £700m in 08/09 and it will fall further to £400m in 09/10.
As part of the cutbacks, the building of the £67m Bradford distribution centre will be delayed, postponing the creation of 2,500 jobs in the area.
Subject to planning permission, M&S hopes to create one of its biggest transport and distribution hubs in the UK on the former West Bowling Golf Club off Rooley Lane close to the M606.
The new centre was supposed to open in 2010, but will now be delayed. A spokesman for M&S said the company was yet to decide when it would open, but confirmed the group was still committed to the project.
The centre is a joint venture between M&S and distribution company ProLogis.
Both parties will invest £20m in the site's development and there are plans to create a further 1,000 jobs at a range of business and enterprise units for small to medium-sized businesses. In addition 145 houses will be built on the eastern part of the site.
The sharp decline in M&S profits came after UK like-for-like sales slid 5.7 per cent during the first half.
Sir Stuart described trading during October as volatile.
"It's very up and down," he said. "People are staying at home and watching TV although in the last 10 days, as the weather has turned colder, shoppers have bought woolly sweaters and tights."
Sir Stuart joined other retailers in calling for a cut in interest rates.
"If the Government or the Bank of England reduce interest rates this Thursday – and I think there's a very high likelihood that they will – and more importantly, if the banks themselves reduce the inter-banking rate – in other words, lend each other money at a cheaper rate – then some of that will filter through in terms of consumer confidence to the UK consumer," he said. "Maybe at the back end of 2009 we'll see blue skies."
The group's profits were slightly better than the £290m expected in the City. M&S is forecast to report full-year profits of around £640m – a far cry from last year's figure of more than £1bn.
Sir Stuart said the company would manage the business through the downturn by tightly controlling costs, capital expenditure and stock levels.
In addition the highly successful "Dine in for £10" promotion and weekend offers are starting to drive footfall and encourage renewed interest from the more occasional customer.
Sir Stuart said he is taking a "glass half-full" attitude to the crucial festive season and hopes to stimulate trade with a TV advertising campaign featuring pop group Take That and the retailer's main models – Twiggy, Myleene Klass, Lily Cole, Erin O'Connor and Noemie Lenoir.
Retailers are struggling as shoppers cut back on spending amid rising unemployment, falling house prices and recession fears.
