M&S sales hit by customer caution

THE troubled retail sector is expecting more bad news this week when high street giant Marks & Spencer reports its first fall in sales in 18 months as older and more affluent customers feel the pinch of the Government’s spending cuts.

M&S, Britain’s biggest clothing retailer, is forecast to report a two to four per cent fall in UK like-for-like sales on Wednesday, following a sharp slowdown in consumer spending during the 13 weeks to April 2.

A number of retail heavyweights including Next, Currys, PC World and Argos have reported disappointing trading in 2011 as customers tighten their belts.

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M&S bucked the trend over Christmas and traded well while many of its rivals were hit by the severe weather but sales have tumbled since then, reflecting the pressure on consumers’ disposable incomes.

Societe Generale analyst Anne Critchlow said: “A number of external signals, such as John Lewis department store clothing sales, suggest that this was a painful quarter for M&S in general merchandise.”

M&S benefited from shoppers trading up in 2010, but is expected to join the ranks of store groups warning on the trading outlook for the 2011-12 year.

Consumers are increasingly unwilling to spend as higher inflation, fuelled by January’s rise in the VAT sales tax and rising oil, utility and food prices, bite into incomes.

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They are also worried about job losses and cuts to welfare benefits, as well as the prospect of higher interest rates.

Shopping habits are changing with traditionally resilient areas of spending on food, foreign holidays and children, all suffering.

M&S is expected to reveal a particularly weak performance in general merchandise.

The group’s like-for-like general merchandise sales, which include clothing, footwear and homewares, are forecast to have fallen between four and eight per cent, after rising 3.8 per cent in the previous quarter.

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Food sales are likely to be between 0 and three per cent, after rising 1.8 per cent in the previous quarter.

The group’s shares have slipped 12 per cent over the past six months, underperforming an eight per cent fall in the UK general retail index

Analysts have recently cut their pre-tax profit forecasts for M&S.

According to a company poll, the consensus forecast is £709m for 2010-11 and £745m for 2011-12. The City will be looking for further details and progress on new chief executive Marc Bolland’s strategic vision for the business.

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Mr Bolland’s latest move is a return to France, 10 years after M&S quit Continental Europe.

M&S will launch a French website and plans to open a three-storey shop on the Champs Elysees in Paris, one of the city’s most famous tourist streets, selling womenswear, lingerie and food.

M&S also wants to open around five Simply Food stores in and around Paris.

The stores will be located in transport hubs such as railway stations and airports. It will also look for sites for “a handful” of larger food and clothes stores in and around Paris.

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M&S believes the brand is still held in high esteem by the French and said a recent survey showed 70 per cent of consumers recognise it.

Mr Bolland said: “Marks & Spencer has great brand awareness in France and a place in customers’ hearts.”

M&S closed its 38 loss-making continental European stores in 2001 to focus on its turnaround plans for the UK business.

Mr Bolland, who arrived at M&S from Bradford-based Morrisons in May, has said he wants to increase the pace of the group’s international expansion as part of his vision to transform the business.

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Mr Bolland’s strategy for the group, outlined in November, also involves a drive to place the chain’s own brand at the forefront of the vision for the business.

In clothing, as well as boosting its own brand, the company plans to invest in its sub-brands – such as womenswear ranges Per Una and Indigo Collection – through improved marketing and clearer positioning in stores.

SCOPE FOR GROWTH IN ASIAN MARKETS

M&S serves 21 million customers a week from 697 stores.

It has 358 stores in 42 overseas territories, but chief executive Marc Bolland said there is scope for faster growth, particularly in Asia.

He has also signalled he will look at western European markets again.

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Analysts said it was sensible for the company to look to diversify away from the tough British market, although they said it must learn the lessons from its chequered history of international expansion.

Analyst Kate Calvert at Seymour Pierce said: “They seem to be going into the market in a more sensible fashion, adapting to the local market environment.”