January 8, 2015 / 7:15 AM / 5 years ago

Marks & Spencer's Christmas ruined by online delivery problems

LONDON (Reuters) - Delivery problems at its online business meant Marks & Spencer fell well short of Christmas sales forecasts, raising fresh questions about Chief Executive Marc Bolland’s turnaround strategy for Britain’s biggest clothing retailer.

Pedestrians walk past an M&S shop in northwest London July 8, 2014. REUTERS/Suzanne Plunkett

The 131-year-old company, a mainstay of Britain’s shopping streets, said on Thursday sales of general merchandise, which includes clothing, gifts and homewares, fell 5.8 percent in the 13 weeks to Dec. 27.

That was the 14th consecutive quarterly decline and well below the 3 percent drop expected by analysts. It was also a worse performance than arch-rivals Next and John Lewis.

“Once Britain’s greatest retailer, M&S is fast becoming an also-ran,” said John Ibbotson, director of retail consultants Retail Vision.

“The quality, price and website of its clothing arm are simply not good enough compared to the ever buoyant Next.”

At 1220 GMT, M&S shares were down 4.7 percent at 441.5 pence, the biggest drop on the UK’s FTSE-100 index and wiping out some of the 10 percent gain over the last 13 weeks.

Bolland, poached from supermarket group Morrisons in 2010 to turn around M&S’s general merchandise business, called the quarter and the distribution problems “disappointing”.

He declined to set any target for restoring sales growth in the general merchandise, despite saying that weather and distribution issues were the reason for most of the drop.

Warm autumn weather caused about 3.5 percent of the decline, as fashion retailers suffered in October and November.

Problems at M&S’s new distribution centre at Castle Donnington in central England, coming after it had fixed issues with its website, hit sales by another 1-1.5 percent.

M&S.com sales fell 5.9 percent in the quarter. It was unable to cope with a surge of orders around a “Black Friday” promotion, and had to cancel next-day deliveries.

WOMENSWEAR CHALLENGE

Bolland’s biggest challenge has been making the company’s womenswear more appealing to its core female customers. Changes he has made have won positive reviews in the fashion press, but are yet to translate into a sustainable improvement in sales.

He told reporters that womenswear was the best performing category in general merchandise.

Bolland has been trying to wean M&S off driving sales by discounting in stores, aiming to improve margins and preserve profit even as sales seep away to rivals, like low-priced, fast-turnover retailer Primark.

“We’ve made a trade off...our discounting was lower over December than last year,” he told reporters.

“We have been very clear on our priorities for the year when we said that the improvements of gross margins for the business was a strong priority.”

Analysts said this, as well as a reduction in the expected increase in operating costs, would probably keep full-year profit forecasts unchanged at around 640-650 million pounds.

Espirito Santo analyst Tony Shiret said if M&S had posted such a negative sales figure a few years ago, “the wheels would have completely fallen off in terms of profit”.

“They’re in decent clean, shape going forward,” Shiret said. “There are uncertainties, but the bottom line is they need to deliver some sales growth and when will that start to happen.”

In its food business, which contributes over half of group sales, M&S said a 0.1 percent rise in like-for-like sales outperformed the wider grocery market.

Tesco, Britain’s biggest supermarket group, said its UK sales over the six weeks including Christmas fell a smaller-than-expected 0.5 percent.

Editing by Mark Potter/Keith Weir

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