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News - 4 October 2008

Rocky retail

A grim trading update from Marks & Spencer compounds the gloom on the High Street as the UK retail sector heads into the all important Christmas trading period and some analysts are predicting the worst Christmas for 30 years.

The UK’s biggest clothing retailer announced sales in the three months to the end of September, including newly opened stores, were down 1.6%. Like-for-like sales, excluding new floor space, were down by 6%. Poor sales of food and fashions mean that the chain will be cutting back on its store refurbishment programme and other overheads in an effort to protect profits and the dividend payout to shareholders.

M&S chairman Sir Stuart Rose said: " Shoppers are worried about inflation, they are worried about interest rates, they are worried about their house price and they are worried about the safety of their money in their bank."

Nick Bubb, a leading retailing analyst at Pali International has predicted the worst Christmas trading period since the late 1970s.

The decline in M&S food sales is in contrast to the experience of rivals. This week Tesco reported a near-4% rise in food sales. Consumers are said to be trading down to cheaper ranges and defecting to discounters such as Aldi and Lidl.

As has become increasingly common with the large retail chains, the good news in the trading statement was an increase of 34% in online sales.

The retailer is cutting expenditure on refurbishment and new store openings. Some 70% of old stores have already been refurbished. Planned investment of up to £900m this year has been slashed to £700m and next year's outlay has been cut to £400m.

The retailer has seen its fortunes take a serious turn for the worse. This year it reported its first £1bn profit for a decade. Now analysts expect about £640m next year and as little as £500m the year after.

Similarly John Lewis, the other bellwether of the retail sector, reported last week that its sales were down by 8% over the year and they too had seen large increases in internet activity. If this was stripped out of the equation, sales would be down by over 16% in most of its stores.

Read related items on:
Retail, pubs, clubs and restaurants
John Lewis
Marks & Spencer
Rose, Stuart

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