Marks & Spencer sent shockwaves through the retail sector yesterday when it unveiled a profit warning and parted company with the head of its food business.
M&S's executive chairman, Sir Stuart Rose, said: "This is the fastest and most severe slowdown since the early 1990s."
The high-street bellwether said that its UK like-for-likes sales had tumbled by 5.3 per cent for the 13 weeks to 28 June, which was its worst trading update for three years.
Yesterday, M&S's shares fell by 78p, nearly 25 per cent, to close at 240p—its lowest share price since June 2001. Its profit warning also triggered a sharp fall in many retail shares. Rivals Debenhams fell by 12 per cent to 37.25p and Next was down by 72p to 837.5p.
Poor trading led M&S to bring forward its first-quarter trading statement a week early, in which it revealed that UK like-for-like sales of general merchandise had fallen 6.2 per cent and food was down by 4.5 per cent.
Sir Stuart said: "I can't believe this is an M&S exclusive problem. I think this is definitely a retail slowdown and we don't know where it is going."
The poor showing in food has prompted the early departure of Steve Esom, director of food, who left the business on Tuesday just over a year after joining from Waitrose, where he had been managing director.
Asked about Mr Esom's departure, Sir Stuart said: "We need a different set of tricks for harder times. Customers are restricting their spending. We need to trade the business a bit harder through what will be a longer slowdown than expected."
Mr Esom joined from Waitrose in May 2007 and was paid a £500,000 golden hello. Sir Stuart said: "I would have liked to see a bit more pace [on food]."
However, a Credit Suisse analyst, Tony Shiret, said: "It is quite shocking that he got rid of Steve Esom. He [Sir Stuart] only made him a main board member in March, which suggests his judgement in March was terrible."
When Mr Esom was elevated on to the board, it fuelled speculation that he was one of a handful of internal contenders eventually to succeed Sir Stuart. Mr Esom will receive a pay-off and his contract terms will be honoured.
John Dixon, currently director of the home sector and M&S Direct, has been appointed head of food. Sir Stuart said: "He has 15 years experience. He can hit the ground running." He added: "We need a different horse for a different course."
Sir Stuart said that Mr Dixon has the remit to look at M&S's entire food offer, covering elements such as price and availability, in what he called "the biggest price war of the last 20 years". He denied that M&S would take its food offer downmarket or that he would close some M&S Simply Food stores.
Next week, M&S will launch 350 branded food products, such as Tabasco and Coca-Cola, in 19 stores in the North-east, which will help customers to do a broader weekly shop.
For the 13 weeks to 28 June, M&S's total UK clothing sales were down by 3.6 per cent. But Sir Stuart launched a vigorous defence of its performance by saying it was "holding market share in clothing" and that its summer sale will start at the same time as last year.
He said: "The volume levels of clothing are at record levels." But these record levels include the new space M&S has opened over the past year.
Mr Shiret said: "The [recent clothing] selection did not have enough fashion in it and the commodity price is not competitive enough in my opinion."
Sir Stuart said that, because M&S is the UK's biggest retailer of clothing, it "cannot defy gravity. You cannot go out with the tide when it is coming in."
Sir Stuart faces a re-election vote at next week's AGM. PIRC, the corporate governance watchdog, has advised members to vote against his re-election. However, Mr Shiret said the profit warning underlines the concerns about Sir Stuart's joint role of chairman and chief executive. "His credibility is undermined," said Mr Shiret.
City analysts took a sword to their profit forecasts for M&S, following the trading update. Panmure Gordon downgraded its forecast for full-year pre-tax profits from £822m to £640m for the current financial year. Their analyst Philip Dorgan said: "We said the M&S trading statement would be poor. We were wrong. It's absolutely dreadful."