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M&S Hit By Poor Sales At China Store Chain

(c) Sky News 2013

Marks & Spencer (Other OTC: MAKSY - news) is facing a fresh headache over its trading performance as its stores in mainland China struggle to meet sales targets set by executives.

I understand that the retailer's 14 shops in the world's most populous nation have been underperforming internal targets by as much as 30% during parts of the last few months.

The news comes weeks after M&S confirmed that like-for-like sales at its core UK business were disappointing during the crucial Christmas trading period.

People close to M&S said that the company's management remained wholly committed to its operations in China and that further outlets would open this year. Its inaugural store on the mainland opened in 2008 on West Nanjing Road in Shanghai, often dubbed the city's answer to London's Bond Street.

In its third-quarter results statement this month, M&S said that international sales during the period had risen by just over 4% on a constant currency basis, which strips out the effect of exchange rate movements.

It also said: "Our key international markets in India and China continued to trade well. However, international sales overall were impacted by currency translation, as well as continued macro-economic weakness in the Republic of Ireland (OTC BB: IRLD - news) and Greece and the on-going restructuring of our Central European business."

Insiders said, though, that the stores in China were "significantly underperforming against internal targets".

An M&S spokeswoman declined to comment.

The stores in China are predominantly located in Shanghai but M&S also has a presence in so-called 'second-tier' cities such as Ningbo, Qingdao and Wuhan, each of which has a population of several million people.

M&S, which also operates 14 stores in Hong Kong, is far from the only international clothing retailer to attempt to crack the potentially-vast Chinese market. H&M, the Swedish group, Spanish-owned Zara and Uniqlo of Japan also have a sizeable presence there.

The international expansion of M&S's business under Marc Bolland, the current chief executive, and his predecessor, Sir Stuart Rose, followed a controversial period of retrenchment which saw the company pull out of countries including France and the United States at huge financial cost.

Mr Bolland is under pressure to demonstrate a rebound in M&S's UK general merchandise business, where same-store sales fell by 3.8% over Christmas.

The City was, however, reassured to a degree by Mr Bolland's efforts to protect margins by not discounting as heavily as M&S had done a year earlier.

Its food business fared better, registering a 0.3% increase in like-for-like sales during the trading period.

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