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M&S price cuts send chill through City

Abigail Townsend,Clayton Hirst
Sunday 27 February 2005 01:00 GMT
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Fears are growing that trading at Marks & Spencer is deteriorating after the high-street giant began slashing prices.

Fears are growing that trading at Marks & Spencer is deteriorating after the high-street giant began slashing prices.

February is when retailers sell their spring collection at full price, as the January sales have only recently come to an end and new ranges are being introduced. But despite this, M&S has cut prices across its stores, including discounts on its core womenswear brands.

A pair of Per Una jeans on the group's website is now selling for £29.50, down from £35, while research by Dresdner Kleinwort Wasserstein (DrKW) has shown prices cut in both London and the regions by an average of 24 per cent.

A spokeswoman for M&S denied the move was in response to tough trading, adding: "It's not exactly discounting. It's our new lower-entry price points. We've been working on this for some time."

The retailer's chief executive, Stuart Rose, admitted last year that M&S's prices were too high and said he aimed to reposition the group accordingly. The spokeswoman added that the price cuts were across the board, and said the in-store discounting - despite the price changes being permanent - simply allowed the company to change prices for existing ranges.

However, industry insiders voiced concern. DrKW commented: "In spite of the snow in the UK, it still feels very early to be cutting prices of spring merchandise. This price activity is most likely part of the 'clear as we go' strategy, but it may just reflect a step change in pricing in certain areas.

"Either way, this cannot be good news for M&S's margin. [Just] as important, any evidence that the market leader is taking prices down must be bearish for the industry."

Another industry source, a former employee of the retailer, also voiced reservations. He said: "This will make M&S womenswear cheaper than Next, so it is obviously a very deliberate move. But cutting the prices of the spring/summer collection so soon after the ranges have been launched is an unusual move. The normal practice is to stick to the launch price point until the end-of-season sales."

Most analysts believe February is shaping up to be a dire month across the high street. The British Retail Consortium's industry figures, due in the next few weeks, are expected to show a slide in sales, and the City is bracing itself for a spate of gloomy updates from even traditionally strong players such as Next. Last week's cold snap would have compounded the weak trading.

Nick Bubb, a retail analyst at broker Evolution Securities, said: "It's tough, and I don't think it's a coincidence that the likes of M&S have started to cut prices."

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