WTO price cuts loom as 'dire' M&S disappoints

The nightmare on Baker Street continues apace

Marks & Spencer may be forced into price cuts in its core clothing range because of the end of export quotas from China and the Far East, Stuart Rose, the chief executive, said yesterday.

Marks & Spencer may be forced into price cuts in its core clothing range because of the end of export quotas from China and the Far East, Stuart Rose, the chief executive, said yesterday.

As Mr Rose announced details of the retailer's share buy-back and delivered a trading update which he admitted was "dire", he also looked ahead to the possibility of a price war in clothing merchandise.

Mr Rose said the impact of lifting quotas under a World Trade Organisation agreement was still uncertain. He said he would not lead a round of price cuts but that M&S would react if rivals such as Next aggressively cut prices in response to cheaper garments coming from the Far East.

"In theory, when the quotas come off in January 2005, prices could come down 10-15 per cent at cost price," Mr Rose said.

"However, it's not quite as simple as that. You have to assume they [the garment manufacturers] will release it all. We don't know whether that product will get sourced to China and whether it can accommodate it all. You have a lot of stuff coming out of places like Sri Lanka and Bangladesh which is quota and duty free which has a price advantage over China.

"But the best guess is there will be some reduction in prices from China, but will retailers pass it on? Next says it will, we don't know. We will listen, look and learn. If we have to do something we will, but I wouldn't want to lead it."

An M&S trading update for the 10 weeks to 18 September showed a continuing deterioration, with like-for-like sales down 6.3 per cent. Mr Rose blamed the disruption caused by the putative bid from Philip Green over the summer as one reason why sales had been hit. However, categories such as homeware were down more than 20 per cent on a like-for-like basis where the company had become "too contemporary", according to Mr Rose.

The M&S chief executive also announced details of a £2.3bn tender offer for a third of its outstanding equity in a price range of 332p-380p. Shareholders were invited to tender their shares in that range and a price will be struck at the lowest level that allows Cazenove, M&S's broker, to purchase the maximum number of shares at a total cost of £2.3bn.

The level of the range brought an angry reaction from some shareholders. During a heated exchange at the company's analyst presentation, Pioneer Investments demanded to know why people should carry on holding M&S shares when the tender offer range was so far below Philip Green's proposed 400p offer. The low level of the range undermined management's declared confidence that the business was worth more than 400p, the Pioneer analyst said.

"You are clearly not confident that value remains in the business, otherwise you wouldn't have a range so low. Why should I buy at the current market price of 342p and tender them at 332p? Clearly you think your shareholders are irrational," the analyst said. Later Mr Rose said: "The noise coming back from the market is not much noise, which means we've got it pretty much right."