MARKS & SPENCER Group, Britain's largest clothing retailer, reported a drop in profit yesterday as smaller rival Primark boosted revenue with cheaper fashions.
Marks Spencer posted a 43 per cent drop in first-half profit and said business was "volatile" last month as the economy slowed. Primark, a unit of Associated British Foods which trades as Penneys in Ireland, increased annual operating profit 17 per cent to £233 million (€286 million). Sales rose 21 per cent.
Among Marks & Spencer's lines are Christmas party dresses, priced from £29.50 each. Primark, which accounts for nearly one-third of group profit and has 181 stores in Britain, Ireland and Spain, retails frocks starting at £10, attracting shoppers as consumer spending declines and the euro zone tilts towards recession.
"We went into Marks last week for a pair of black trousers and walked straight out again," said Amanda Murphy (39), a carer, as she left Penneys in Dublin yesterday. "They have everything and it's cheaper."
As some shoppers favour cheaper stores, Marks & Spencer chairman Stuart Rose said he's "cautious" on the outlook for the rest of the year. Primark said it plans to add stores in the UK and Spain in the coming year and will also test outlets in Germany and the Netherlands.
"The next year could be a very tough one for the consumer," David Buik, a market analyst at BGC Partners in London, said in a note to clients. "He is much more likely to go to Primark, Tesco and Asda while the going is tough."
Marks & Spencer's profit decline was less than analysts estimated and the company stuck with its dividend. The stock rose 12.25 per cent to 233.75 pence in mid-afternoon trading in London. The stock is down 58 per cent this year.
Associated British Foods has dropped 23 per cent in the same period. Revenue at Primark stores which have been open for at least a year increased 4 per cent in the discount chain's latest fiscal year. At Marks Spencer, clothing and homeware sales on that basis weakened 6.2 per cent in the last six months.
"It's very expensive, especially for older people," said Catriona McHale (70) as she left Marks & Spencer's Dublin store.
Mr Rose said a man's suit priced at £199 is now the retailer's fastest seller, overtaking a version which sells for £299. Prices have been cut for 560 food products, or 10 per cent of the total offer, he said.
Primark is the second-largest British clothes seller behind Marks, with a market share of more than 10 per cent. "Primark has done well in previous downturns," said AB Foods chief executive George Weston. He said the retailer is "well-placed for the recession". - ( Bloomberg)
