Affluent shoppers help M&S to buck the trend

The UK’s biggest clothing retailer said consumer confidence, although low, has not deteriorated over the past two months.

M&S chief executive Marc Bolland said: “What we are seeing is that people are keen to protect their summer holidays and are reducing their spend in some areas. For example they are cutting back on dining out.”

Like other retailers, the group received a boost from the bank holidays around the Royal Wedding and Easter.

M&S said like-for-like sales grew by 1.7 per cent in the 13 weeks to July 2, up from the 0.1 per cent increase in the previous quarter.

The group has expanded its share of the food market with the launch of a number of new products including healthy eating options and a new Italian range.

The group’s ‘Simply Fuller Longer’ range reported sales growth of more than 50 per cent as the retailer grew its healthy eating lines.

Some 500 new products were launched during the quarter.

Customers also bought party food to help them celebrate the Royal Wedding and the run of bank holidays.

M&S has halted a recent decline in non-food sales, including clothes and homewares.

Like-for-like general merchandise sales, spanning clothing, footwear and homewares, were flat, while food sales rose by 3.3 per cent.

“M&S has delivered a good performance in challenging conditions,” said Mr Bolland, the former chief executive of Bradford-based Morrisons.

His strategy is focused on product innovation, as well as expanding online and abroad. He is also working to improve stores, marketing, logistics and technology.

“For us, we bring out new things but we bring innovation out with a very strong price as well, the combination of those works very well for us,” he said.

M&S said it had won 0.2 percentage point of market share in clothing, marking 17 consecutive months of gains, and 0.1 point in food.

The 127-year-old group, which serves 21 million customers a week from around 700 stores and has over 350 stores overseas, said its guidance for 2011/12 is unchanged, even though it, like rivals such as Debenhams, started its summer sale early.

“We just followed the market, but we were certainly not the first one in, we were one of the last ones in,” said Mr Bolland.

The first quarter consisted of a strong April, when trade was boosted by the warm Easter weather and the Royal Wedding, a more subdued May and the sales boost in June.

But some analysts had hoped for even better results.

Arden Partners analyst Nick Bubb said: “Given how good April was, plus the earlier summer sale, we had hoped for more like two per cent like-for-like (growth) in general merchandise in the first quarter, but the outcome is only flat ex-VAT, which is a bit disappointing.”

Liberum Capital analyst Simon Irwin, who cut his 2011/12 earnings forecast, said clothing markets are likely to remain overstocked, making it harder to pass on the full impact of higher input prices.

M&S, whose average selling prices rose seven per cent higher in the first quarter, said trading conditions will stay tough due to pressure on consumers’ incomes and high commodity prices.

Shoppers are grappling with rising prices, subdued wages growth, a lack of credit, job insecurity, a stagnant housing market, Government austerity measures and fears of interest rate rises.

This has led to a recent spate of retail failures and more are expected. Retail sales showed sluggish year-on-year growth of 1.5 per cent last month with demand for big-ticket items remaining weak.

Mr Bolland reported an increase in sales of premium ranges as consumers traded up as part of a “buy once, buy well” trend.

He said the group had increased choice of its ‘better’ and ‘best’ ranges to tap into demand for quality products.

Customers are also buying basic ranges.

The group sold 500,000 Brazilian-cut knickers, a 64 per cent increase in sales, after they were promoted in a buy-three-for-£10 deal.

Its advertising campaign had also paid off, with an Autograph suit modelled by former footballer Jamie Redknapp breaking sales records.

Analyst Ramona Tipnis at Shore Capital said: “The new ranges in food are certainly benefiting the company with 500 new products launched in the quarter.

“With new updated ranges and refreshed branding only becoming apparent in general merchandise for the autumn/winter season, the impact here is a bit more delayed, which explains the slightly weaker than anticipated like-for-like sales.

“Nevertheless both food and clothing saw market share gains of 10 basis points to 3.8 per cent and 20 basis points to 11.7 per cent.

“The outlook statement remains subdued.”