Deep discounting to hit M&S sales, say analysts

M&S is facing another quarter of sales decline at its clothing business as deep discounting in the run-up to Christmas aimed at luring customers in store hits its profit margins, according to analysts.


The retailer has been offering discounts of up to 50 per cent off beauty and festive gift lines, as well as 30 per cent off clothing including knitwear, usually a big seller at Christmas. Analysts at Nomura are predicting a decline in clothing sales at M&S of 0.5 per cent in the third quarter, the first three-month period since it relaunched its womenswear line.

M&S launched a high-profile ad campaign for Christmas, using celebrities including Helena Bonham-Carter and Rosie Huntington-Whitely and the strapline “Believe in magic and sparkle”. It has been well received, although the judge of its success will come when M&S reveals sales figures for the Christmas period.

Meanwhile, analysts at UBS and Oriel Securities are reducing their earnings estimates for M&S by between 3 per cent and 8 per cent for the full year ended March. Analysts have also cut their forecasts for Debenhams after a letter to suppliers, leaked to the Daily Mail, revealed that the retailer is asking for discounts of 2.5 per cent to pay for its marketing and a one-off charge of 2.5 per cent.

Concerns are mounting over the performance of the high street as a whole this Christmas. The latest figures from the Office of National Statistics show that retail spend was up 2 per cent year on year in November, below the 2.6 per cent rise in inflation.

UBS warns that clothing retailers have “hit the panic button” this year as pressures on disposable income, weak high street traffic and warm weather hit consumer spending. This has led to retailers running deep discounts, promotions and offers in order to tempt customers.

Besides M&S, retailers such as H&M, Gap, Debenhams and House of Fraser are offering up to 50 per cent discounts, while Topshop, Oasis and River Island are running promotions for almost a third off.

UBS analyst Andrew Hughes says: “The clothing retailers look to have pressed the panic button this year. There is an increasing fear that the consumer wallet is smaller and only the retailers with promotions will get the footfall.”

Analysts expect December 23 to be the biggest shopping day of the year as the timing of Christmas (which falls on a Wednesday) means many people are expected to leave it until the last minute to complete their shopping. Data from Springboard shows that footfall on UK high streets was 2.1 per cent lower in the week to 15 December compared with the same period a year ago, as many people turn to the internet.

Online retail sales topped £10bn in November, according to IMRG Capgemini figures. Chris Webster, vice president and head of retail consulting at Capgemini, says e-retail is the growth engine of an otherwise struggling retail sector.

Oriel Securities analyst Jonathan Pritchard says the “breadth and depth” of discounting suggests retailers are “losing their nerve”.
“Retailers are judging that stock cleared at discount before Christmas may avoid more damaging and deeper discounts in January. It’s a gamble with only one winner, the consumer.”



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