City forecasts grim reading as M&S lifts the lid on its Christmas trading figures

The fallen giant cannot claim to be the victim of high street malaise as competitors have posted improved sales

The best isn't always kept till last. Marks & Spencer today becomes the last of Britain's major retailers to update the market on its Christmas trading performance, and the figures are expected to be among the worst seen this year.

The best isn't always kept till last. Marks & Spencer today becomes the last of Britain's major retailers to update the market on its Christmas trading performance, and the figures are expected to be among the worst seen this year.

Opinions vary on the precise details but there has been a growing feeling in the City that the company's underlying clothing sales in the first 16 weeks of its second half are down by around 10 per cent on the same period last year. Menswear is said to be down by as much as 15 per cent with womenswear down 11 per cent and childrenswear down 8 per cent. The only bright spots have been food and home furnishings though clothing margins have also been improving.

It all makes grim reading for Luc Vandevelde, who joined M&S as chairman almost exactly a year ago. He has just 12 months before his self-imposed deadline expires for achieving a meaningful improvement in M&S's fortunes. M&S would not comment yesterday on the trading estimates but it is certainly true that its 298 UK outlets went into the sale with more stock than forecast due to a policy of not discounting in the run-up to Christmas. That stock is now having to be shoved into some of the group's less important branches as it tries to avoid delaying the launch of its spring ranges which are being introduced over the next two weeks.

It is important to put M&S's trading update into context. First, M&S is trading against extremely weak comparisons so the figures are even worse than they look. Underlying clothing sales were down by around 20 per cent this time last year and around 5 per cent the year before that. This means underlying sales have fallen between 30-40 per cent over a three year period. Second, other clothing retailers enjoyed a respectable Christmas so M&S cannot claim to be the victim of a general high street malaise. On average clothing retailers have been reporting sales rises of around 5 per cent on a like-for-like basis. Debenhams, Selfridges, Monsoon have all done well with companies such as Arcadia and New Look showing improvements after difficult periods.

Why is M&S doing so badly? Analysts say the problems are in two areas; product and price. One says: "The problem is that the quality of the ranges is not good enough for the prices they are charging. They have stopped investing the margin gains in lower prices and are taking it to the bottom line instead. So while they are priced competitively at the entry level garments, they are still viewed as expensive in the middle area. The product just isn't there and people are looking elsewhere for alternatives."

Matthew McEachran, retail analyst at Investec Henderson Crosthwaite, says: "Everyone is complaining about the state of the merchandise, particularly in womenswear. People say it still looks very frumpy at the older end and too trendy at the younger end."

Things have got so bad that M&S's problems have spread to all walks of life, with criticising the fallen giant becoming almost a national sport. Old ladies are saying things like: "Looking at the state of their clothes perhaps it would be a good thing if they got taken over." On a recent edition of the BBC sports quiz They Think it's all Over, the charisma-challenged snooker player Steve Davis was lambasted for wearing an M&S shirt. "That's no surprise, your performance lately has been about as good as their share price," said the host, Nick Hancock.

Why is M&S still struggling so badly? Its problems centre on three main areas - changes in management, changes in its supply base and changes in its market. On the management question it is clear that M&S has suffered from a huge turnover in senior personnel both at board level and at the level just below it. Among the executive directors on the board Alan McWalter, the marketing director, is the second longest server with just 13 months. Other senior managers have been departing in droves leaving M&S in an almost permanent state of change. Now the business is seen as being run by a group of strategists with remarkably little experience in M&S's principal business - selling clothes. A new design director is due to be announced any day but this will not make up for the exodus of top talent.

The same changes have hit the supply base. Up until two years ago M&S had stayed with the same suppliers for decades. Though a high level of UK manufacturing led to higher costs at least M&S enjoyed strong, supportive relationships with its main clothing suppliers such as Coats Viyella and Courtaulds Textiles. But Coats Viyella has sold its M&S supply business to a management buy-out which is not currently supplying M&S. Courtaulds Textiles has been sold to Sara Lee of the US, Dewhirst is looking at a MBO and William Baird is currently in court with M&S over the retailer's abrupt decision to end its long-term supply agreement.

But perhaps the most significant change affecting M&S is a structural change in its market. The historic strength of M&S has been a combination of quality, value and service that was aimed at virtually the whole population regardless of age, gender or demographic status. Basically, a young secretary could shop alongside a grandmother. But the high street has changed, segmenting into smaller niches both in terms of price and fashionability.

As one analyst says: "In the 21st century will an eight year old and an 80 year old buy their underwear in the same place? Will any retailer be able to hold down that amount of market share with one format?"

Where will it all end? Analysts are uncertain as to whether M&S will fall to a bid. As Investec's Mr McEachran, says: "I'm not sure why anyone would go for it. They'd inherit all these problems." Another analyst says M&S's immediate future will show continued decline: "I think it will continue to decline until the shape of the business is changed."