As M&S shares fell 10 per cent to close to a five-year low, Britain's largest retailer admitted that it had been "caught cold" by the sharp slowdown in sales in the summer.
"It's a bloodbath out there," said Sir Richard Greenbury, M&S chairman and chief executive. "The entire high street moved into sale mode at the end of June. We all thought sales would recover in September and October but they haven't. Business has fallen off a cliff for all of us."
Pointing to panic selling by rival clothing retailers which, he said, have been cutting prices by up to 50 per cent to entice buyers, Sir Richard said he had not experienced such a sales slump since Margaret Thatcher doubled the level of VAT in 1979.
Sales in M&S stores were up by 14 per cent in May compared with the same month last year. But by June, they went into reverse and have yet to recover.
Reporting a 23 per cent fall in profits from pounds 452m to pounds 348m for the first six months of the year, M&S blamed its problems on a series of factors. It highlighted the sharp slowdown in UK consumer spending, the additional disruption and costs associated with the company's pounds 2.1bn expansion programme, and problems in overseas markets where sales have been hampered by the strong pound and the economic turmoil in the Far East.
Additional problems have included softer sales of mid-priced ranges where M&S has been undercut by rivals.
City analysts criticised the company for complacency. They said M&S should have reacted more quickly to the impact of the strong pound by sourcing more goods from overseas. Some experts also criticised the company's bureaucratic management structure, which they say slows decision making. Some were even asking a question that would normally be unthinkable: after decades of high street dominance - is the mighty Marks & Spencer losing its touch?
"They have been a bit complacent," one leading retailing analyst said yesterday. "The clothing market has shifted and people are more attracted to stores where the stock changes quickly, such as The Gap and Oasis. That indicates a younger market which is not Marks's forte." Another analyst said M&S is too centralised and relies too heavily on supplying overseas markets from Britain.
Although M&S shares have underperformed the stock market by 40 per cent over the past year, most analysts said it was too soon to write off the bellwether of Britain's retail industry. Richard Hyman, head of Verdict, the retail consultancy said: "I think the City is over- reacting. The competitive position of M&S is not seriously threatened. In some ways this jolt is bad news for Marks' competitors. M&S will emerge stronger and come out fighting."
Though the company said it did not expect the sales trend to reverse in the next six months and that the coming year's profits would be "significantly below" those of last year, Sir Richard said he was confident that M&S was well placed to stage a fightback. "I feel more confident than I did a year ago. We know what we are going to do and this business does better in tougher times."
He said operating costs will be reduced though there will be no UK redundancies. M&S will rein back its expansion programme, cutting it by pounds 300m.
Essential Suit Collection (mix and match range of trouser suits, skirts and jackets)
Footglove shoes (new, comfy range)
Short-sleeved knitwear (sold well with formal wear)
Summer dresses (due to poor weather)
Jeans ("a lot of people have already got them," M&S says)
Furnishings (sales fell after last year's windfall boost)Reuse content