Marks & Spencer (M&S) confirmed today it is selling big brands for the first time in a bid to close the sales gap with Waitrose, its upmarket rival, as profits beat analysts’ forecasts for the first six months of the year.

M&S is introducing 400 brands across its stores, and is already selling the products alongside its own-name goods in 60 sites. It is the first time since the 1950s that the retailer with 600 UK stores has sold non-M&S branded products.

Sir Stuart Rose, chairman of M&S said: “The idea is If you want a favourite brand you can buy it, I’m a Tabasco sauce fan myself, so I’d like to buy the brand in our stores. That’s what the customers said they wanted and if the customers want they get it. We used to sell branded products in the 1930s and then again in the 1950s when we went own brand. It just shows how the trade has evolved and come full circle.”

The radical move came as the store unveiled flat pre-tax profits of £298 million for the six months to September 26 – ahead of analysts’ forecasts of £285 million. Shares in M&S rose by 5.2 per cent to 358.8p in early trading.

Sir Stuart said that the stores had had a good start to the third quarter but he cautioned that Christmas and the year ahead could be tough with the market still competitive.

Last year the chain held two one-day sale “spectaculars” in the festive season which made sales figures volatile and he indicated this could well be repeated this year.

“We had a volatile Christmas last year with a couple of ’spectaculars’,” he said. “We will unveil our Christmas advertising campaign in the next week or so and we will be giving customers treats but not to any significant extent more than last year.”

Overall like-for-like sales, which strip out revenue from new stores opened during the period, fell 0.9 per cent with food trade down 0.3 per cent.

General merchandise, which measures M&S’ clothing sales, fell 1.4 per cent.

Sales rose 2.8 per cent to £4.3 billion with 12 per cent growth in international and 1.8 per cent in the UK.

The decision to sell big branded goods may improve the leadership credentials of John Dixon, executive director of food, who is the leading internal candidate to become chief executive, allowing Sir Stuart to become a non-executive chairman.

Mr Dixon said: “My team and I are focused on delivering the best that M&S Food can offer — innovative products that provide unbeatable quality and great value. But there are some products that we could simply never compete with.”

He cited Marmite, made by Unilever, and Nestlé’s Kit Kat as examples of goods impossible to replicate. Other branded goods that M&S will stock include PG Tips tea bags and Jameson Irish whiskey.

During a trial conducted last year, the branded goods were supplied in a deal with Booker and that arrangement is under review for the roll-out.

The move comes as Marks’s half-year figures showed that it was losing market share in food, falling from 3.7 per cent to 3.5 per cent in the quarter.

This week M&S launched its first high-profile price comparison adverts, under the headline “Price checked against Waitrose Essentials.Quality checked by M&S”.

The company said today it had reduced its interim dividend from 8.3p to 5.5p, in-line with an earlier decision to cut the full-year payout.

The pension deficit ballooned from £152 million to £521 million in the six months as values of corporate bonds drove up liabilities. M&S is expecting the triennial valuation to be calculated early in the new year which is likely to lead to a step up in the deficit that the company needs to fund but finance director said; “I’m not losing any sleep over it, our cash flow is strong enough.”

Sir Stuart said: “We are pleased with our first-half performance. Our strong customer offer, together with tight management of costs and margin, has allowed us to report a profit slightly ahead of last year, despite a challenging economic environment. We increased our share of the clothing market over the period, and our performance in food has also improved.”

“We have had a good start to the third quarter. However, the market remains competitive and, as we come up against volatile trading conditions last year, we remain cautious about the outlook for Christmas and the year ahead. We are increasingly confident that customers recognise and trust our outstanding quality, value and ethical stance.”

Source : The Times

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