Catalogue chain Argos scraped a half-year profit of just £3.4 million today after consumers put off buying "big ticket" electronics items.
With sales down 9% on a like-for-like basis in the 26 weeks to August 27, Argos owner Home Retail Group said the chain's profits slumped from £54.4 million a year earlier as margins were also hammered by discounting.
Chief executive Terry Duddy added the company had not seen the sales improvement it had expected as it gears up for the Christmas season.
It hopes to offset some of the turmoil in the UK, where it has 750 stores, by setting up a joint venture to launch Argos in China.
Home Retail Group's bottom-line pre-tax profits slumped 70% to £28 million, as its homewares chain Homebase was also hit by a squeeze on its sales and margins.
Argos said its core customers have borne the brunt of the current squeeze in living standards, adding that with many not being home owners they had benefited less from low interest rates.
They have cut back on buying non-essential items, particularly electronics items such as televisions and video games systems, which saw the group's market decline by about 20% in the period, it added.
Argos's operating margin was squeezed to 0.2% from 3% as it was forced to discount to shift stock and it battled higher shipping costs and the weakness of the pound.
The chain will enter China next year through a joint-venture with Haier, which manufactures appliances such as fridges and freezers.
Like-for-like sales at Homebase, which operates 342 stores, were down 0.6%, as sales of big ticket items remained challenging, although sales of bedroom furniture and bathrooms benefited from new ranges and installation services.
Meanwhile, Homebase grew its share of the home improvement market, which has been badly hit in recent years amid falling house prices.
Mr Duddy added: "Core customers at Argos have continued to be under greater pressure and there were ongoing challenging conditions across several product categories, most notably consumer electronics.
"As we now enter our busiest trading period market conditions remain both weak and volatile, and in these early weeks of the second half we have not seen the improvement in sales that we had anticipated."
Shares opened 8% lower today.