Matalan profits soar as Monsoon flags

THE CHANGING nature of high street spending was dramatically underlined yesterday by the contrasting fortunes of two clothing retailers. Matalan, the discount retailer announced soaring profits and an aggressive expansion plan, while Monsoon, the upmarket women's fashion group, reported its first profits fall in13 years.

Matalan, which sells cut-priced items like Lee Cooper polo shirts for pounds 8 and Pepe jeans for pounds 20, is now aiming to become the second biggest clothing retailer in the country after Marks & Spencer.

It wants to double its number of stores from 99 to 200 by 2004. Matalan has already nearly doubled its market share from 1.1 per cent to 1.8 per cent in the past year and claims consumer trends are moving in its favour.

"It is becoming fashionable to shop to save money," said Angus Monro, chief executive. "The whole rip-off Britain campaign is helping us as people are increasingly focusing on value."

Richard Hyman of Verdict, the retail consultants, agreed price was becoming increasingly important. "Price is definitely coming more to the fore in retailing ... It is an unstoppable trend that is here to stay. It is becoming harder and harder to raise prices and that plays to the strength of companies like Matalan."

However, he said Monsoon's difficulties were more complex and had been caused partly by unrealistic City expectations after its shares were priced so highly when the group came to the stock market nearly two years ago. "Monsoon is a quality retailer with a loyal customer base and good management," Mr Hyman said. "If a business like that has no future then God help most of the other fashion retailers."

Matalan has proved a spectacular stock market success and its shares soared again yesterday on the back of a huge jump in half-year profits from pounds 6m to pounds 16.4m. Like for like sales rose by 25 per cent. The shares rose by 19 per cent to a new high of 1,047.5p. This compares to an issue price of 235p when the company came to the stock market in May last year.

The surge means Matalan has a stock market value of almost pounds 900m with two-thirds of the shares controlled by John Hargreaves, the chairman and his family. Mr Hargreaves started Matalan from a market stall in Skelmersdale, Lancashire, 14 years ago after a trip to see Wal-Mart in the United States.

Matalan yesterday brushed aside the threat of Wal-Mart's takeover of Asda, saying it was unlikely that Wal-Mart would be prepared to match them on price. It will test five larger format stores of 70,000 square feet next year "to help combat the threat". "We think it will be good for us because it will taken the focus firmly out of the high street into out of town."

The company said it had visited Wal-Mart's store in Germany, and said the clothing offer was "absolute rubbish".

Monsoon reported a fall in full-year profits from pounds 27.7m to pounds 20.4m. Like-for-like sales fell by 7 per cent, though in the 13 weeks to the end of August sales are the same as last year. Margins also fell due to a higher proportion of sales being made in the sale periods.

The shares, priced at 198p at flotation, fell 9.5p to 76p.

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