Fes­tive sea­son sales slump leaves bad taste for M&S

The Sunday Telegraph - Money & Business - - Front page - By Ash­ley Arm­strong

MARKS & Spencer is set to lose the bat­tle of the Christ­mas aisles as its strug­gling food arm posts its worst fes­tive per­for­mance for a decade.

M&S’S up­mar­ket food divi­sion used to be its growth en­gine, but an­a­lysts be­lieve the chain con­tin­ues to lose cus­tomers to ri­val su­per­mar­kets and the dis­coun­ters.

As a re­sult, the City is pen­cilling in a fall in like-for-like food sales of be­tween 2pc and 3.5pc, the worst re­sult since the re­ces­sion.

It fol­lows a tor­rid year for re­tail­ers, which started with the col­lapse of Toys R Us and cul­mi­nated in the demise of HMV. High street sales have been the worst on record, ac­cord­ing to ac­coun­tants BDO, con­firm­ing a warn­ing from Sports Di­rect’s Mike Ash­ley in the runup to Christ­mas that re­tail­ers were be­ing “smashed to pieces” by “un­be­liev­ably bad” trad­ing.

M&S will be hit fur­ther by fall­ing sales in its cloth­ing and home de­part­ments, which are fore­cast to drop fur­ther by be­tween 1.6pc and 4pc.

The re­tailer re­cently hired Stu­art Machin from Stein­hoff to re­vive its for­tunes in food with a strat­egy to curb dis­count­ing in favour of re­duc­ing over­all prices. How­ever, this has yet to trans­late into a sales boost.

Dave Mccarthy, an­a­lyst at HSBC, said it had not been a vin­tage year for food re­tail­ers. He said dis­coun­ters are “suck­ing out all the growth”. The “Big Four” su­per­mar­kets rely on shop­pers “trad­ing up” over Christ­mas, but Aldi and Lidl’s pre­mium ranges have meant they have not en­joyed the usual lift over the fes­tive pe­riod.

Tesco is ex­pected to be the winner out of the ma­jor gro­cers. An­a­lysts are fore­cast­ing a 0.5pc rise in like-for-like sales, al­though last year Bri­tain’s big­gest re­tailer was hit by lost to­bacco sales fol­low­ing the col­lapse of whole­saler Palmer & Har­vey.

Sales at Mor­risons are ex­pected to be flat, al­though the Brad­ford-based gro­cer has a track record of sur­pris­ing the City.

Sains­bury’s is tipped to be the worst of the Big Four with a 0.4pc drop in re­tail like-for-like sales as sales growth at Ar­gos fails to off­set flag­ging gro­cery and cloth­ing sales.

An up­beat fes­tive per­for­mance by Next last week cheered the sec­tor. How­ever, un­like many of its brick­sand-mor­tar ri­vals, its boom­ing on­line busi­ness is cush­ion­ing it from slid­ing store sales.

M&S makes just a fifth of its sales on­line and is heav­ily ex­posed to dwin­dling store foot­fall.

Sales at em­bat­tled de­part­ment store chain Deben­hams also went back­wards over Christ­mas, de­spite re­lent­lessly dis­count­ing through­out Novem­ber and De­cem­ber. An­a­lysts ex­pect a drop of around 2.5pc in sales, al­though the re­tailer has so far de­fied fears it would is­sue an­other profit warn­ing.

Al­though the slump is smaller than some cor­ners of the City pre­dicted, it will fail to al­lay con­cerns that Deben­hams can over­come a badly bloated balance sheet.

“Be­ing a lit­tle bit bet­ter over Christ- mas doesn’t mean much if you’re not mak­ing much money,” said Tony Shiret at Whit­man Howard.

The de­part­ment store will face a grilling from in­vestors on Thurs­day at its AGM, just a month af­ter ma­jor share­holder Mr Ash­ley of­fered Deben­hams an emer­gency loan.

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