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Trading up or trading down?

Marks & Spencer and its disappointing trading update has been hotly debated by the industry all week.

The general consensus among suppliers and retailers is that chief executive Stuart Rose and the company's previous sparkling share price were unfairly hammered when he reported a like-for-like sales decline of 2.2% earlier this week.

Rose defended the chain, pointing out that this Christmas it sold more items than in Christmas 2006 but that these were at lower prices (6% price deflation), hence the decline. This brings us to an interesting industry cross-roads.

I heard an interesting anecdote about an M&S Christmas order yesterday. One item (which shall remain nameless) apparently shifted 400,000 units at £30 in Christmas 2006. However, for Christmas 2007 the supplier was asked to source different materials to help shave the price down to £20 with the promise of a bigger order.

The bigger order never came and M&S sold the same number of items, 400,000, but sacrificed 30% turnover on it.

This supports lots of complaints about price deflation but has caused some people to question whether M&S should be a bit snappier when it comes to pricing.

Similarly the Christmas winners (apart from Primark which seems to go like a train no matter the retail climate) seem to be the fashion retailers operating in the premium or more exclusive markets, generally with a higher price point.

Rose was quite obviously annoyed at comparisons to John Lewis this week claiming the department store serves a smaller group of shoppers. But with an advertising spend and refurbishment costs as high as M&S you do wonder whether the Twiggy factor could justify an extra £5 on the ticket then and there.

However, Rose is completely right when he says he is competing with everyone including Tesco and its value for money men's underpants. What M&S can't afford to do is allow its price/quality equation to get out of step with the market as it was before Rose's arrival.

Let's not forget Rose's incredible achievement at M&S and let's be certain to look at M&S figures in the context of the market and economic slowdown - just look at the trading update for New Look and Jacques Vert yesterday for example. And hands up who can remember the last time Next put out positive like-for-like figures? Yet a decline of over 3% and no return to like-for-like growth in 2008 seems to have been given the benefit of the doubt.

For the full Stuart Rose results interview click here. Also vote on Drapers' M&S poll vote below (see right hand column).

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