M&S fights tough UK market with Saturday sale

LONDON Fri Dec 20, 2013 7:45am EST

LONDON Dec 20 (Reuters) - Marks & Spencer, Britain's biggest clothing retailer, will attempt to drive Christmas trading by holding a rare one-day sale on Saturday, cutting prices on all non-food items by 30 percent, a source close to the company told Reuters.

It will be the first time in five years the group has tried the tactic at its 770 British stores. The last time was in 2008, when Stuart Rose, the chief executive at the time, was battling weak consumer demand during the financial crisis.

The strategy will raise fears the firm has traded poorly in the crucial festive season so far, piling more pressure on current CEO Marc Bolland whose recovery plan around higher quality and more stylish fashions has so far failed to kick-start sales.

According to the source M&S will also continue to offer up to 50 percent off selected beauty and Christmas gift items.

M&S declined to comment on future promotional activity.

"With much of its non-food range on promotion anyway this week, it is arguably not much of a step to just promote everything, despite the irritation caused to loyal customers who have paid full price in recent weeks," said independent retail analyst Nick Bubb.

"Whether it will turn out to be worth doing that in the short-term, just to try to save the CEO's job, remains to be seen, but the M&S brand will suffer long-term damage."

M&S is not alone among clothing retailers in promoting heavily in a tough retail market. Gap is currently on sale, offering up to 60 percent reductions, while French Connection is offering up to 50 percent.

Research this week by PwC found 72 percent of 100 high street retailers were on sale or advertising promotions in their shop window, such as three-for-two offers. It said average price discounts being advertised were 46 percent.

Shares in M&S were up 1.5 percent at 451 pence at 1136 GMT, valuing the 129-year old business at 7.3 billion pounds ($11.9 billion). The stock has fallen 10 percent over the last month, including 3 percent over the last five days.

UNDER PRESSURE

Though M&S's food business continues to trade well the firm has posted nine straight quarters of declining underlying clothing sales and could report a tenth when it updates on third quarter trading on Jan. 9.

Analysts had hoped that with the inclusion of the much vaunted new autumn/winter ranges, the firm's third quarter to end-December would see general merchandise return to positive like-for-like sales growth. The previous quarter had included the new range for just three weeks of the period.

Now, many analysts are forecasting a tenth quarter of decline, even though last year's comparative numbers are weak.

Freddie George, analyst at Cantor Fitzgerald, is forecasting a third quarter like-for-like general merchandise sales decline of 1.5 percent and is also concerned that gross margins have been under pressure from discounting.

"The strategy of reducing the number of lines and backing the 'winners', which are highly geared to a cold weather environment, including cashmere and coats, appears to have back-fired as a result of the milder than expected weather over the last two months," he said.

On Friday he downgraded his 2013-14 pretax profit forecast to 630 million pounds from 645 million pounds, retained his 'sell' rating and cut his price target to 425 pence from 445 pence.

Only a few UK clothing retailers, such as Next and SuperGroup, which have longstanding policies of not going on sale before Christmas, have refrained from price cuts.

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