M&S benefits from shoppers’ demand to ‘protect’ Christmas

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CUSTOMERS splashed out on festive food to “protect” Christmas, but demanded bargains in the homeware and clothing aisles, said high street bellwether Marks & Spencer.

Strong sales of festive food helped the retailer’s third quarter sales return to positive territory, but deep discounting was not enough to prevent a steep slide in homeware sales.

The UK’s biggest clothing retailer recorded sales growth of 0.5 per cent at stores open for more than a year in the 13 weeks to December 31.

Food saw a three per cent rise in like-for-like sales, but general merchandise slid 1.8 per cent, worse than expected.

With consumers battling rising unemployment, Government spending cuts, eurozone economic uncertainty, stagnant wages and higher bills, M&S said it “performed well in a challenging environment”.

Industry body the British Retail Consortium estimates December retail sales rose 2.2 per cent – more than expected – but warned the high street figures were boosted by snow-hit performance a year ago, adding discounting may eat into margins.

M&S’s marginal growth compared with a second quarter sales fall of 0.7 per cent.

M&S revealed it is making another £30m of cuts this year, taking its total to £90m.

It is slashing costs to compensate for heavy discounting – to ensure profits meet City expectations. But this will not include big redundancies, added chief executive Marc Bolland.

“We are managing our costs very carefully and prudently in the business,” he said. “(It is) better planning, being more efficient, making sure we have different working practices.”

Total food sales at the retailer rose 4.5 per cent, which M&S said showed customers continued spending over Christmas despite the bleak economic climate.

“Customers protected their Christmas and came to M&S for everything they needed for a special Christmas at home,” said Mr Bolland.

In the week prior to Christmas, M&S enjoyed its best-ever week’s food sales, selling 25 per cent more turkeys and 33m mince pies.

“The week has probably beaten all of our direct competitors,” said Mr Bolland.

However, general merchandise, which ranges from socks to candlesticks, reported a mixed quarter. M&S generally had to rely on heavy discounting to lure in customers. It used tactics such as ‘25 per cent off’ in the run up to Christmas.

“We traded well in a heavily promotional market by putting our customers’ budget at the heart of our offer,” said Mr Bolland.

Despite promotions, homeware sales tumbled 13.3 per cent. M&S insisted this was largely down to its decision a year ago to exit the technology sector. “We expected it to be a promotional market, and that’s the market we saw,” said chief finance officer Alan Stewart. “We planned for a number of promotions, and that’s what we delivered to our customers.”

Mr Bolland added: “From the start of November onwards you would have seen everywhere people start with promotions even on some quite fresh and new lines.

“Going forward we read the consumer well and expect there will be some promotional pressure.”

Total clothing sales edged up 1.1 per cent, helped by M&S’s biggest ever quarter in children’s wear. Offers such as a £59 dinner suit also proved popular, selling more than 40,000 items during the quarter.

But Mr Bolland admitted women’s wear suffered during the period, with sales falling an unquantified amount. “Women’s wear was slightly under pressure. It has been one of the most competitive (categories).”

M&S’s figures follow Bradford-based supermarket Morrisons’ like-for-like sales growth of 0.7 per cent in the six weeks to January 1, a sharp slowdown which reflected shoppers trading down. M&S said it is on course to hit City expectations for the year to the end of March, but economic uncertainty prevails. “We continued to see a market that looks for quality, and customers are cautious in terms of their spend. They continue to see a tough year ahead,” said Mr Stewart.

He added events such as the Queen’s Diamond Jubilee, the Olympics, the Paralympics, the Euro 2012 football championships should provide a boost.

Shares in the group firmed 9.2p to 317.7p, a three per cent gain.

Charles Stanley analyst Sam Hart said: “The bias of M&S customer base towards more affluent and older demographic groups means we expect sales to be relatively resilient, but gross margins could remain under pressure.”