Shares in Marks & Spencer and Debenhams slumped yesterday as a number of analysts cut forecasts amid evidence of widespread discounting on the high street. M&S's shares slid 2.39% to 441.5p as the retailer put up sale signs in stores on Tuesday offering 30% off knitwear, its core seasonal product category, and the same discount on clothing under the Per Una brand, beauty products and sleepwear. Meanwhile, Debenhams' shares dived 4.33% to 78.45p on news that it had been asking suppliers for discounts just days before Christmas, suggesting its profit margins were under pressure amid heavy discounting by rival clothing specialists. M&S's march into almost full sale mode just a week before Christmas followed a 20% voucher offer at the weekend as most clothing retailers battled to win sales amid heavy competition from the lure of electronic goods and the dampening effect of mild weather. Sweaters, cardigans and other warm clothing is piling up in stores in the absence of icy weather to drive sales. M&S's latest discounts follow on from discounts of up to 50% at Debenhams , New Look, H&M and House of Fraser , the department store currently in talks with the privately owned French retailer Galeries Lafayette about a possible sale. Meanwhile, a host of other clothing retailers including River Island , Oasis, Topshop , Miss Selfridge and Evans are all offering savings of up to 30%. "The clothing retailers look to have pressed the panic button this year," wrote Andrew Hughes . The UBS analyst cut profit forecasts for M&S by 3% and Debenhams by 11%: "There is an increasing fear that the consumer wallet is smaller and only the retailers with promotions will get the footfall." Hughes said M&S was likely to miss the profit-margin increase it had targeted for non-food items in the second half of its financial year, as the store was having to discount some of its bestsellers in the heavily promotional climate. The underperformance would be a big disappointment for M&S's under-pressure chief executive, Marc Bolland , who is trying to drive a turnaround in clothing sales after months of underlying sales falls. Jonathan Pritchard , at Oriel Securities , slashed his profit forecast for M&S by 8%, Debenhams by 13% and Mothercare by 21%. He said: "We expect that ultimately the disappointments will come on gross margins rather than sales." Meanwhile, Fraser Ramzan at Nomura wiped pounds 32m, or 4.7%, off his expectations for M&S's full-year profits and nearly 6% off his profit forecasts for Debenhams as he estimated their discounting activity had cost each retailer about pounds 15m in lost profit margin relative to last year. He added that shoppers' disposable incomes remained under pressure despite more positive signs on employment and inflation in recent days. The quarterly income tracker of Asda supermarkets, for example, showed no year-on-year growth in the three months to October. Meanwhile, Ramzan pointed out that a top-end version of this year's most wanted Christmas present, a tablet computer, could cost more than pounds 300, equivalent to 30 pieces of clothing. As a consequence, electrical gifts were sucking spending from the rest of the market, said Ramzan. Hughes suggested that promotions were concentrated in clothing and department stores with fewer signs of discounting for toys, homewares or electricals. However, the Toy Retailers Association has recently said that promotions are on the increase after an 8% fall in toy sales in November compared with a year before. Meanwhile, the number of shoppers visiting stores also continues to look weak. Shopper numbers were down 2.1% on high streets, 2.3% at shopping centres and 1% at retail parks in the week to 15 December compared with the same period a year before, according to figures released by Springboard this week. That fall may partly be the result of the timing of Christmas, which means that more shoppers are leaving their gift-buying to this coming weekend. There are some signs of positivity, however. In the CBI's monthly survey of retailers, 48% of 100 retailers questioned said sales were up on a year ago, while just 14% said sales were down, giving a positive balance of 34%, ahead of expectations. A balance of 29% expected sales growth to continue next month. Barry Williams , Asda's chief merchandising officer for food, and chairman of the CBI Distributive Trades Survey Panel , said: "After a disappointing couple of months, sales volumes in December recovered their sparkle, beating retailers' expectations. "Customers have clearly held off spending through the autumn and we're only now seeing them start to hit the stores." Captions: London's Oxford Street has been busy but clothing retailers, such as M&S, top, have suffered as shoppers opt for electricals, while Debenhams has squeezed suppliers to protect margins Photo: Leon Neal /AFP/ Getty
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