M&S boosted by demand for premium goods

Marks & Spencer today revealed an increase in sales as consumers trade up to more premium food and clothes despite the squeeze on the high street.

Like-for-like sales at the retail bellwether increased by 1.7% in the 13 weeks to July 2, up from a 0.1% increase in the previous quarter.

Chief executive Marc Bolland said the retailer had tapped into a trend for consumers to "buy once, buy well", which has seen a good response to premium ranges such as Italian meats and body shaping swimwear.

M&S, which has 703 stores in the UK, has grown its share of both the food and clothing markets to 3.8% and 11.7% respectively, according to industry figures.

The "growing demand for quality" and rising costs meant average selling prices were up 7%, compared with 6% in the previous quarter.

The squeeze in consumer spending power has forced retailers including TJ Hughes, Jane Norman and Habitat into administration in recent months, while others, such as Mothercare, Thorntons and Comet, have announced store closures.

But Mr Bolland said M&S was an anchor of the high street and it would continue to invest in its stores.

M&S's sales figures were partly helped by an early start to the retailer's summer sale in response to activity by competitors. The second part of its sale will launch tomorrow.

The better-than-expected sales figures came as Mr Bolland prepared to face shareholders over executive pay, which has been branded excessive by one lobby group.

General merchandise sales were flat, compared to a 3.4% decline in the previous quarter, but volumes were "slightly" down reflecting the tough conditions in the market as nervous consumers delay all but essential purchases.

Best-selling lines include an Autograph suit modelled by former footballer Jamie Redknapp and maxi dresses selling for £49.50.

But customers were also buying sharply priced basic ranges, added the Dutchman, who said the chain had sold 500,000 Brazilian-cut knickers, an increase of 64% on the previous year, after being placed on a buy-three-for-£10 deal.

Food sales were up 3.3% after being boosted by the bank holidays around the royal wedding and Easter as consumers bought more party food.

Some 500 new ranges have been introduced in the period, including new healthy eating products, an Italian deli range and antipasti. Its Dine in for £10 meal deals for two continued to prove popular as consumers ate out less.

But shares were down 2% following the update after the retailer said conditions on the high street would remain challenging due to pressure on consumers' disposable incomes.

Nick Bubb, an analyst at Arden Partners, said: "Today's update should have boosted short-term sentiment as it shows that M&S is keeping its nose above water and ahead of a pretty tough market."

But he added that the flat general merchandise sales were "a bit disappointing" as he had hoped for a 2% like-for-like sales increase.