William Baird supplies M&S with ladieswear, menswear and childrenswear, and the retail giant accounts for 40 per cent of its output. Even after last year's closures it still has 18 factories dedicated to M&S employing 6,000 people.
But Baird's chief executive, David Suddens,reporting a slump in profits after two warnings last year, said a double whammy of falling orders from M&S and a squeeze on prices meant more closures were likely. "There are bound to be further reductions this year," he said.
He added: "Business at the moment is very tough and M&S still has too much stock in its pipeline. Orders from them are down by 10 per cent year- on-year."
William Baird is shifting more of its production to cheaper areas such as Sri Lanka and Turkey in an attempt to reduce costs as M&S tries to make its prices more competitive.
The gloomy statement hit M&S shares, pushing them 14.75p lower to 380.25p. Nick Bubb, retail analyst at SG Securities, said: "This seems to give strength to market rumours indicating that M&S may have experienced bad clothing sales in February, which otherwise looks like a rather good month."
William Baird said it was committed to M&S but the relationship was likely to change. There is currently too much duplication on design, quality control, technology and logistics, it said.
The comments came as William Baird reported a 12 per cent slump in full- year operating profits to pounds 31m. Profits in its M&S business fell from pounds 11.2m to pounds 6.9m and margins fell from 5 per cent to 3.2 per cent.
Elsewhere, Dawson International, the Pringle sweater group, said it plans to sell off a number of its interests to concentrate on its cashmere operations. The group reported a loss of pounds 11m after pounds 13.8m of exceptional charges.
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